Correlation Between Chow Tai and Compagnie Financire

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

By analyzing existing cross correlation between Chow Tai Fook and Compagnie Financire Richemont, you can compare the effects of market volatilities on Chow Tai and Compagnie Financire 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 Chow Tai with a short position of Compagnie Financire. Check out your portfolio center. Please also check ongoing floating volatility patterns of Chow Tai and Compagnie Financire.

Diversification Opportunities for Chow Tai and Compagnie Financire

0.12

Correlation Coefficient

Chow Tai  Compagnie Financire

Average diversification

The 3 months correlation between Chow and Compagnie is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding Chow Tai Fook and Compagnie Financire Richemont in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Compagnie Financire and Chow Tai 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 Chow Tai Fook are associated (or correlated) with Compagnie Financire. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Compagnie Financire has no effect on the direction of Chow Tai i.e., Chow Tai and Compagnie Financire go up and down completely randomly.

Pair Corralation between Chow Tai and Compagnie Financire

Assuming the 90 days horizon Chow Tai Fook is expected to under-perform the Compagnie Financire. But the pink sheet apears to be less risky and, when comparing its historical volatility, Chow Tai Fook is 1.1 times less risky than Compagnie Financire. The pink sheet trades about -0.06 of its potential returns per unit of risk. The Compagnie Financire Richemont is currently generating about 0.27 of returns per unit of risk over similar time horizon. If you would invest  14,801  in Compagnie Financire Richemont on March 9, 2024 and sell it today you would earn a total of  1,687  from holding Compagnie Financire Richemont or generate 11.4% return on investment over 90 days.

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

Chow Tai Fook  vs.  Compagnie Financire Richemont

Chow Tai Fook

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Chow Tai Fook 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 strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Compagnie Financire

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Compagnie Financire Richemont has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical indicators, Compagnie Financire is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Chow Tai and Compagnie Financire

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

The idea behind Chow Tai Fook and Compagnie Financire Richemont 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.