Correlation Between Far Eastern and Chang Hwa
Can any of the company-specific risk be diversified away by investing in both Far Eastern and Chang Hwa at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Far Eastern and Chang Hwa into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Far Eastern Department and Chang Hwa Commercial, you can compare the effects of market volatilities on Far Eastern and Chang Hwa and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Far Eastern with a short position of Chang Hwa. Check out your portfolio center. Please also check ongoing floating volatility patterns of Far Eastern and Chang Hwa.
Diversification Opportunities for Far Eastern and Chang Hwa
0.02 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Far and Chang is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Far Eastern Department and Chang Hwa Commercial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chang Hwa Commercial and Far Eastern is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Far Eastern Department are associated (or correlated) with Chang Hwa. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chang Hwa Commercial has no effect on the direction of Far Eastern i.e., Far Eastern and Chang Hwa go up and down completely randomly.
Pair Corralation between Far Eastern and Chang Hwa
Assuming the 90 days trading horizon Far Eastern Department is expected to under-perform the Chang Hwa. In addition to that, Far Eastern is 1.43 times more volatile than Chang Hwa Commercial. It trades about -0.13 of its total potential returns per unit of risk. Chang Hwa Commercial is currently generating about 0.05 per unit of volatility. If you would invest 1,765 in Chang Hwa Commercial on August 29, 2024 and sell it today you would earn a total of 10.00 from holding Chang Hwa Commercial or generate 0.57% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 95.65% |
| Values | Daily Returns |
Far Eastern Department vs. Chang Hwa Commercial
Performance |
| Timeline |
| Far Eastern Department |
| Chang Hwa Commercial |
Far Eastern and Chang Hwa Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Far Eastern and Chang Hwa
The main advantage of trading using opposite Far Eastern and Chang Hwa positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Far Eastern position performs unexpectedly, Chang Hwa can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Chang Hwa will offset losses from the drop in Chang Hwa's long position.| Far Eastern vs. Yulon Motor Co | Far Eastern vs. Chang Hwa Commercial | Far Eastern vs. Sinopac Financial Holdings | Far Eastern vs. Taiwan Glass Ind |
| Chang Hwa vs. Taiwan Secom Co | Chang Hwa vs. TTET Union Corp | Chang Hwa vs. China Steel Chemical | Chang Hwa vs. Taiwan Shin Kong |
Check out your portfolio center.Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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