Correlation Between Johnson Chemical and Tong Hwa
Can any of the company-specific risk be diversified away by investing in both Johnson Chemical and Tong 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 Johnson Chemical and Tong Hwa into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Johnson Chemical Pharmaceutical and Tong Hwa Synthetic Fiber, you can compare the effects of market volatilities on Johnson Chemical and Tong 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 Johnson Chemical with a short position of Tong Hwa. Check out your portfolio center. Please also check ongoing floating volatility patterns of Johnson Chemical and Tong Hwa.
Diversification Opportunities for Johnson Chemical and Tong Hwa
0.34 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Johnson and Tong is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding Johnson Chemical Pharmaceutica and Tong Hwa Synthetic Fiber in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tong Hwa Synthetic and Johnson Chemical 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 Johnson Chemical Pharmaceutical are associated (or correlated) with Tong Hwa. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tong Hwa Synthetic has no effect on the direction of Johnson Chemical i.e., Johnson Chemical and Tong Hwa go up and down completely randomly.
Pair Corralation between Johnson Chemical and Tong Hwa
Assuming the 90 days trading horizon Johnson Chemical Pharmaceutical is expected to generate 1.22 times more return on investment than Tong Hwa. However, Johnson Chemical is 1.22 times more volatile than Tong Hwa Synthetic Fiber. It trades about -0.03 of its potential returns per unit of risk. Tong Hwa Synthetic Fiber is currently generating about -0.06 per unit of risk. If you would invest 7,110 in Johnson Chemical Pharmaceutical on November 3, 2024 and sell it today you would lose (80.00) from holding Johnson Chemical Pharmaceutical or give up 1.13% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Johnson Chemical Pharmaceutica vs. Tong Hwa Synthetic Fiber
Performance |
| Timeline |
| Johnson Chemical Pha |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
| Tong Hwa Synthetic |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
Johnson Chemical and Tong Hwa Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Johnson Chemical and Tong Hwa
The main advantage of trading using opposite Johnson Chemical and Tong Hwa positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Johnson Chemical position performs unexpectedly, Tong 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 Tong Hwa will offset losses from the drop in Tong Hwa's long position.The idea behind Johnson Chemical Pharmaceutical and Tong Hwa Synthetic Fiber pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.
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