Correlation Between Far Eastern and Nan Ya

Can any of the company-specific risk be diversified away by investing in both Far Eastern and Nan Ya 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 Far Eastern and Nan Ya into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Far Eastern New and Nan Ya Plastics, you can compare the effects of market volatilities on Far Eastern and Nan Ya 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 Far Eastern with a short position of Nan Ya. Check out your portfolio center. Please also check ongoing floating volatility patterns of Far Eastern and Nan Ya.

Diversification Opportunities for Far Eastern and Nan Ya

0.61

Correlation Coefficient

Far Eastern  Nan Ya

Poor diversification

The 3 months correlation between Far and Nan is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Far Eastern New and Nan Ya Plastics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nan Ya Plastics and Far Eastern 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 Far Eastern New are associated (or correlated) with Nan Ya. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nan Ya Plastics has no effect on the direction of Far Eastern i.e., Far Eastern and Nan Ya go up and down completely randomly.

Pair Corralation between Far Eastern and Nan Ya

Assuming the 90 days trading horizon Far Eastern New is expected to under-perform the Nan Ya. In addition to that, Far Eastern is 1.12 times more volatile than Nan Ya Plastics. It trades about -0.21 of its total potential returns per unit of risk. Nan Ya Plastics is currently generating about -0.13 per unit of volatility. If you would invest  4,180  in Nan Ya Plastics on September 4, 2024 and sell it today you would lose (215.00) from holding Nan Ya Plastics or give up 5.14% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Far Eastern New  vs.  Nan Ya Plastics

Far Eastern New

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Far Eastern New has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Far Eastern is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Nan Ya Plastics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nan Ya Plastics has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Nan Ya is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Far Eastern and Nan Ya

The main advantage of trading using opposite Far Eastern and Nan Ya positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Far Eastern position performs unexpectedly, Nan Ya 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 Nan Ya will offset losses from the drop in Nan Ya's long position.

The idea behind Far Eastern New and Nan Ya Plastics 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.

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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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.