Correlation Between Taiwan Cement and Lien Hwa

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Can any of the company-specific risk be diversified away by investing in both Taiwan Cement and Lien Hwa 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 Taiwan Cement and Lien Hwa into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Taiwan Cement Corp and Lien Hwa Industrial, you can compare the effects of market volatilities on Taiwan Cement and Lien Hwa 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 Taiwan Cement with a short position of Lien Hwa. Check out your portfolio center. Please also check ongoing floating volatility patterns of Taiwan Cement and Lien Hwa.

Diversification Opportunities for Taiwan Cement and Lien Hwa

0.22
  Correlation Coefficient

Modest diversification

The 3 months correlation between Taiwan and Lien is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Cement Corp and Lien Hwa Industrial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lien Hwa Industrial and Taiwan Cement 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 Taiwan Cement Corp are associated (or correlated) with Lien Hwa. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lien Hwa Industrial has no effect on the direction of Taiwan Cement i.e., Taiwan Cement and Lien Hwa go up and down completely randomly.

Pair Corralation between Taiwan Cement and Lien Hwa

Assuming the 90 days trading horizon Taiwan Cement Corp is expected to under-perform the Lien Hwa. But the stock apears to be less risky and, when comparing its historical volatility, Taiwan Cement Corp is 1.1 times less risky than Lien Hwa. The stock trades about -0.03 of its potential returns per unit of risk. The Lien Hwa Industrial is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  6,430  in Lien Hwa Industrial on August 25, 2024 and sell it today you would lose (590.00) from holding Lien Hwa Industrial or give up 9.18% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy99.69%
ValuesDaily Returns

Taiwan Cement Corp  vs.  Lien Hwa Industrial

 Performance 
       Timeline  
Taiwan Cement Corp 

Risk-Adjusted Performance

1 of 100

 
Weak
 
Strong
Weak
Compared to the overall equity markets, risk-adjusted returns on investments in Taiwan Cement Corp are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Taiwan Cement is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.
Lien Hwa Industrial 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Lien Hwa Industrial 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.

Taiwan Cement and Lien Hwa Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Taiwan Cement and Lien Hwa

The main advantage of trading using opposite Taiwan Cement and Lien Hwa positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Taiwan Cement position performs unexpectedly, Lien Hwa 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 Lien Hwa will offset losses from the drop in Lien Hwa's long position.
The idea behind Taiwan Cement Corp and Lien Hwa Industrial 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..

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