Correlation Between Lumia and Chung Hwa
Can any of the company-specific risk be diversified away by investing in both Lumia 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 Lumia and Chung Hwa into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Lumia and Chung Hwa Chemical, you can compare the effects of market volatilities on Lumia 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 Lumia with a short position of Chung Hwa. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lumia and Chung Hwa.
Diversification Opportunities for Lumia and Chung Hwa
Pay attention - limited upside
The 3 months correlation between Lumia and Chung is -0.83. Overlapping area represents the amount of risk that can be diversified away by holding Lumia and Chung Hwa Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chung Hwa Chemical and Lumia 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 Lumia 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 Chemical has no effect on the direction of Lumia i.e., Lumia and Chung Hwa go up and down completely randomly.
Pair Corralation between Lumia and Chung Hwa
Assuming the 90 days trading horizon Lumia is expected to under-perform the Chung Hwa. In addition to that, Lumia is 3.74 times more volatile than Chung Hwa Chemical. It trades about -0.07 of its total potential returns per unit of risk. Chung Hwa Chemical is currently generating about -0.07 per unit of volatility. If you would invest 2,930 in Chung Hwa Chemical on October 21, 2024 and sell it today you would lose (85.00) from holding Chung Hwa Chemical or give up 2.9% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Lumia vs. Chung Hwa Chemical
Performance |
| Timeline |
| Lumia |
| Chung Hwa Chemical |
Lumia and Chung Hwa Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Lumia and Chung Hwa
The main advantage of trading using opposite Lumia and Chung Hwa positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lumia 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 Lumia and Chung Hwa Chemical 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.| Chung Hwa vs. Oriental Union Chemical | Chung Hwa vs. Everlight Chemical Industrial | Chung Hwa vs. Formosan Union Chemical | Chung Hwa vs. Sesoda Corp |
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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..
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