Correlation Between Chung Hwa and LandMark Optoelectronics

Can any of the company-specific risk be diversified away by investing in both Chung Hwa and LandMark Optoelectronics 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 LandMark Optoelectronics 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 LandMark Optoelectronics, you can compare the effects of market volatilities on Chung Hwa and LandMark Optoelectronics 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 LandMark Optoelectronics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Chung Hwa and LandMark Optoelectronics.

Diversification Opportunities for Chung Hwa and LandMark Optoelectronics

-0.67

Correlation Coefficient

Chung Hwa  LandMark Optoelectronics

Excellent diversification

The 3 months correlation between Chung and LandMark is -0.67. Overlapping area represents the amount of risk that can be diversified away by holding Chung Hwa Food and LandMark Optoelectronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LandMark Optoelectronics 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 LandMark Optoelectronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LandMark Optoelectronics has no effect on the direction of Chung Hwa i.e., Chung Hwa and LandMark Optoelectronics go up and down completely randomly.

Pair Corralation between Chung Hwa and LandMark Optoelectronics

Assuming the 90 days trading horizon Chung Hwa Food is expected to under-perform the LandMark Optoelectronics. But the stock apears to be less risky and, when comparing its historical volatility, Chung Hwa Food is 12.09 times less risky than LandMark Optoelectronics. The stock trades about -0.12 of its potential returns per unit of risk. The LandMark Optoelectronics is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  25,900  in LandMark Optoelectronics on September 21, 2024 and sell it today you would earn a total of  8,800  from holding LandMark Optoelectronics or generate 33.98% return on investment over 90 days.

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

Chung Hwa Food  vs.  LandMark Optoelectronics

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.

LandMark Optoelectronics

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in LandMark Optoelectronics are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, LandMark Optoelectronics showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Chung Hwa and LandMark Optoelectronics

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

The idea behind Chung Hwa Food and LandMark Optoelectronics 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.