Correlation Between Chung Hwa and Elan Microelectronics

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

By analyzing existing cross correlation between Chung Hwa Food and Elan Microelectronics Corp, you can compare the effects of market volatilities on Chung Hwa and Elan Microelectronics 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 Chung Hwa with a short position of Elan Microelectronics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Chung Hwa and Elan Microelectronics.

Diversification Opportunities for Chung Hwa and Elan Microelectronics

-0.51

Correlation Coefficient

Chung Hwa  Elan Microelectronics

Excellent diversification

The 3 months correlation between Chung and Elan is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding Chung Hwa Food and Elan Microelectronics Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Elan Microelectronics and Chung Hwa 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 Chung Hwa Food are associated (or correlated) with Elan Microelectronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Elan Microelectronics has no effect on the direction of Chung Hwa i.e., Chung Hwa and Elan Microelectronics go up and down completely randomly.

Pair Corralation between Chung Hwa and Elan Microelectronics

Assuming the 90 days trading horizon Chung Hwa Food is expected to under-perform the Elan Microelectronics. But the stock apears to be less risky and, when comparing its historical volatility, Chung Hwa Food is 4.43 times less risky than Elan Microelectronics. The stock trades about -0.07 of its potential returns per unit of risk. The Elan Microelectronics Corp is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  14,000  in Elan Microelectronics Corp on October 1, 2024 and sell it today you would earn a total of  1,400  from holding Elan Microelectronics Corp or generate 10.0% return on investment over 90 days.

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

Chung Hwa Food  vs.  Elan Microelectronics Corp

Chung Hwa Food

Risk-Adjusted Performance

0 of 100

Very Weak

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

Elan Microelectronics

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Elan Microelectronics Corp are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Elan Microelectronics may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Chung Hwa and Elan Microelectronics

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

The idea behind Chung Hwa Food and Elan Microelectronics Corp 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.