Correlation Between Sunny Friend and Ching Feng
Can any of the company-specific risk be diversified away by investing in both Sunny Friend and Ching Feng 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 Sunny Friend and Ching Feng into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Sunny Friend Environmental and Ching Feng Home, you can compare the effects of market volatilities on Sunny Friend and Ching Feng 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 Sunny Friend with a short position of Ching Feng. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sunny Friend and Ching Feng.
Diversification Opportunities for Sunny Friend and Ching Feng
0.82 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Sunny and Ching is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Sunny Friend Environmental and Ching Feng Home in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ching Feng Home and Sunny Friend 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 Sunny Friend Environmental are associated (or correlated) with Ching Feng. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ching Feng Home has no effect on the direction of Sunny Friend i.e., Sunny Friend and Ching Feng go up and down completely randomly.
Pair Corralation between Sunny Friend and Ching Feng
Assuming the 90 days trading horizon Sunny Friend Environmental is expected to under-perform the Ching Feng. But the stock apears to be less risky and, when comparing its historical volatility, Sunny Friend Environmental is 1.49 times less risky than Ching Feng. The stock trades about -0.25 of its potential returns per unit of risk. The Ching Feng Home is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest 2,880 in Ching Feng Home on November 3, 2024 and sell it today you would earn a total of 75.00 from holding Ching Feng Home or generate 2.6% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Sunny Friend Environmental vs. Ching Feng Home
Performance |
| Timeline |
| Sunny Friend Environ |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
| Ching Feng Home |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
Sunny Friend and Ching Feng Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Sunny Friend and Ching Feng
The main advantage of trading using opposite Sunny Friend and Ching Feng positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sunny Friend position performs unexpectedly, Ching Feng 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 Ching Feng will offset losses from the drop in Ching Feng's long position.The idea behind Sunny Friend Environmental and Ching Feng Home 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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