Correlation Between Mercuries Life and Chung Fu

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

By analyzing existing cross correlation between Mercuries Life Insurance and Chung Fu Tex International, you can compare the effects of market volatilities on Mercuries Life and Chung Fu 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 Mercuries Life with a short position of Chung Fu. Check out your portfolio center. Please also check ongoing floating volatility patterns of Mercuries Life and Chung Fu.

Diversification Opportunities for Mercuries Life and Chung Fu

0.61

Correlation Coefficient

Mercuries Life  Chung Fu

Poor diversification

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

Pair Corralation between Mercuries Life and Chung Fu

Assuming the 90 days trading horizon Mercuries Life Insurance is expected to under-perform the Chung Fu. But the stock apears to be less risky and, when comparing its historical volatility, Mercuries Life Insurance is 2.1 times less risky than Chung Fu. The stock trades about -0.1 of its potential returns per unit of risk. The Chung Fu Tex International is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  4,130  in Chung Fu Tex International on September 12, 2024 and sell it today you would lose (30.00) from holding Chung Fu Tex International or give up 0.73% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.39%
Values	Daily Returns

Mercuries Life Insurance  vs.  Chung Fu Tex International

Mercuries Life Insurance

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Mercuries Life Insurance 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.

Chung Fu Tex

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Chung Fu Tex International has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Chung Fu 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 Mercuries Life and Chung Fu

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

The idea behind Mercuries Life Insurance and Chung Fu Tex International 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.