Correlation Between Chi Hua and Johnson Health

Can any of the company-specific risk be diversified away by investing in both Chi Hua and Johnson Health 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 Chi Hua and Johnson Health into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Chi Hua Fitness and Johnson Health Tech, you can compare the effects of market volatilities on Chi Hua and Johnson Health 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 Chi Hua with a short position of Johnson Health. Check out your portfolio center. Please also check ongoing floating volatility patterns of Chi Hua and Johnson Health.

Diversification Opportunities for Chi Hua and Johnson Health

-0.35

Correlation Coefficient

Chi Hua  Johnson Health

Very good diversification

The 3 months correlation between Chi and Johnson is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Chi Hua Fitness and Johnson Health Tech in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Johnson Health Tech and Chi Hua 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 Chi Hua Fitness are associated (or correlated) with Johnson Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Johnson Health Tech has no effect on the direction of Chi Hua i.e., Chi Hua and Johnson Health go up and down completely randomly.

Pair Corralation between Chi Hua and Johnson Health

Assuming the 90 days trading horizon Chi Hua Fitness is expected to under-perform the Johnson Health. But the stock apears to be less risky and, when comparing its historical volatility, Chi Hua Fitness is 2.53 times less risky than Johnson Health. The stock trades about -0.1 of its potential returns per unit of risk. The Johnson Health Tech is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  11,850  in Johnson Health Tech on September 5, 2024 and sell it today you would earn a total of  5,200  from holding Johnson Health Tech or generate 43.88% return on investment over 90 days.

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

Chi Hua Fitness  vs.  Johnson Health Tech

Chi Hua Fitness

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Chi Hua Fitness has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Johnson Health Tech

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Johnson Health Tech are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Johnson Health showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Chi Hua and Johnson Health

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

The idea behind Chi Hua Fitness and Johnson Health Tech 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.