Correlation Between Taiwan Cement and Lien Hwa
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 Period | 3 Months [change] |
Direction | Moves Together |
Strength | Very Weak |
Accuracy | 99.69% |
Values | Daily Returns |
Taiwan Cement Corp vs. Lien Hwa Industrial
Performance |
Timeline |
Taiwan Cement Corp |
Lien Hwa Industrial |
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.Taiwan Cement vs. Asia Cement Corp | Taiwan Cement vs. Formosa Plastics Corp | Taiwan Cement vs. Nan Ya Plastics | Taiwan Cement vs. China Steel Corp |
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Check out your portfolio center.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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