Correlation Between Forest Water and Wonderful
Can any of the company-specific risk be diversified away by investing in both Forest Water and Wonderful 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 Forest Water and Wonderful into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Forest Water Environmental and Wonderful Hi Tech Co, you can compare the effects of market volatilities on Forest Water and Wonderful 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 Forest Water with a short position of Wonderful. Check out your portfolio center. Please also check ongoing floating volatility patterns of Forest Water and Wonderful.
Diversification Opportunities for Forest Water and Wonderful
0.72 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Forest and Wonderful is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Forest Water Environmental and Wonderful Hi Tech Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wonderful Hi Tech and Forest Water 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 Forest Water Environmental are associated (or correlated) with Wonderful. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wonderful Hi Tech has no effect on the direction of Forest Water i.e., Forest Water and Wonderful go up and down completely randomly.
Pair Corralation between Forest Water and Wonderful
Assuming the 90 days trading horizon Forest Water Environmental is expected to generate 1.09 times more return on investment than Wonderful. However, Forest Water is 1.09 times more volatile than Wonderful Hi Tech Co. It trades about 0.04 of its potential returns per unit of risk. Wonderful Hi Tech Co is currently generating about 0.04 per unit of risk. If you would invest 2,730 in Forest Water Environmental on September 14, 2024 and sell it today you would earn a total of 1,155 from holding Forest Water Environmental or generate 42.31% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Forest Water Environmental vs. Wonderful Hi Tech Co
Performance |
| Timeline |
| Forest Water Environ |
| Wonderful Hi Tech |
Forest Water and Wonderful Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Forest Water and Wonderful
The main advantage of trading using opposite Forest Water and Wonderful positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Forest Water position performs unexpectedly, Wonderful 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 Wonderful will offset losses from the drop in Wonderful's long position.| Forest Water vs. Yang Ming Marine | Forest Water vs. Wan Hai Lines | Forest Water vs. U Ming Marine Transport | Forest Water vs. Taiwan Navigation Co |
| Wonderful vs. Tang Eng Iron | Wonderful vs. Forest Water Environmental | Wonderful vs. Taiwan Speciality Chemicals | Wonderful vs. Mayer Steel Pipe |
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 Transaction History module to view history of all your transactions and understand their impact on performance.
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