Correlation Between Advantech and Chunghwa Precision

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

By analyzing existing cross correlation between Advantech Co and Chunghwa Precision Test, you can compare the effects of market volatilities on Advantech and Chunghwa Precision 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 Advantech with a short position of Chunghwa Precision. Check out your portfolio center. Please also check ongoing floating volatility patterns of Advantech and Chunghwa Precision.

Diversification Opportunities for Advantech and Chunghwa Precision

0.82

Correlation Coefficient

Advantech  Chunghwa Precision

Very poor diversification

The 3 months correlation between Advantech and Chunghwa is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Advantech Co and Chunghwa Precision Test in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chunghwa Precision Test and Advantech 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 Advantech Co are associated (or correlated) with Chunghwa Precision. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chunghwa Precision Test has no effect on the direction of Advantech i.e., Advantech and Chunghwa Precision go up and down completely randomly.

Pair Corralation between Advantech and Chunghwa Precision

Assuming the 90 days trading horizon Advantech is expected to generate 17.36 times less return on investment than Chunghwa Precision. But when comparing it to its historical volatility, Advantech Co is 2.17 times less risky than Chunghwa Precision. It trades about 0.03 of its potential returns per unit of risk. Chunghwa Precision Test is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  51,300  in Chunghwa Precision Test on September 24, 2024 and sell it today you would earn a total of  30,100  from holding Chunghwa Precision Test or generate 58.67% return on investment over 90 days.

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

Advantech Co  vs.  Chunghwa Precision Test

Advantech

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Advantech Co are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Advantech is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Chunghwa Precision Test

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Chunghwa Precision Test are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Chunghwa Precision showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Advantech and Chunghwa Precision

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

The idea behind Advantech Co and Chunghwa Precision Test 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 Global Correlations module to find global opportunities by holding instruments from different markets.