Correlation Between Asia Metal and Chung Hwa
Can any of the company-specific risk be diversified away by investing in both Asia Metal and Chung 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 Asia Metal and Chung Hwa into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Asia Metal Industries and Chung Hwa Food, you can compare the effects of market volatilities on Asia Metal and Chung 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 Asia Metal with a short position of Chung Hwa. Check out your portfolio center. Please also check ongoing floating volatility patterns of Asia Metal and Chung Hwa.
Diversification Opportunities for Asia Metal and Chung Hwa
0.36 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Asia and Chung is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Asia Metal Industries and Chung Hwa Food in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chung Hwa Food and Asia Metal 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 Asia Metal Industries are associated (or correlated) with Chung Hwa. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chung Hwa Food has no effect on the direction of Asia Metal i.e., Asia Metal and Chung Hwa go up and down completely randomly.
Pair Corralation between Asia Metal and Chung Hwa
Assuming the 90 days trading horizon Asia Metal Industries is expected to generate 4.97 times more return on investment than Chung Hwa. However, Asia Metal is 4.97 times more volatile than Chung Hwa Food. It trades about 0.06 of its potential returns per unit of risk. Chung Hwa Food is currently generating about -0.1 per unit of risk. If you would invest 6,110 in Asia Metal Industries on November 7, 2024 and sell it today you would earn a total of 1,550 from holding Asia Metal Industries or generate 25.37% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Asia Metal Industries vs. Chung Hwa Food
Performance |
| Timeline |
| Asia Metal Industries |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
| Chung Hwa Food |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
Asia Metal and Chung Hwa Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Asia Metal and Chung Hwa
The main advantage of trading using opposite Asia Metal and Chung Hwa positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Asia Metal position performs unexpectedly, Chung 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 Chung Hwa will offset losses from the drop in Chung Hwa's long position.The idea behind Asia Metal Industries and Chung Hwa Food 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.
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