Correlation Between Wei Chuan and ABC Taiwan
Can any of the company-specific risk be diversified away by investing in both Wei Chuan and ABC Taiwan 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 Wei Chuan and ABC Taiwan into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Wei Chuan Foods and ABC Taiwan Electronics, you can compare the effects of market volatilities on Wei Chuan and ABC Taiwan 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 Wei Chuan with a short position of ABC Taiwan. Check out your portfolio center. Please also check ongoing floating volatility patterns of Wei Chuan and ABC Taiwan.
Diversification Opportunities for Wei Chuan and ABC Taiwan
0.58 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Wei and ABC is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Wei Chuan Foods and ABC Taiwan Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ABC Taiwan Electronics and Wei Chuan 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 Wei Chuan Foods are associated (or correlated) with ABC Taiwan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ABC Taiwan Electronics has no effect on the direction of Wei Chuan i.e., Wei Chuan and ABC Taiwan go up and down completely randomly.
Pair Corralation between Wei Chuan and ABC Taiwan
Assuming the 90 days trading horizon Wei Chuan Foods is expected to generate 0.24 times more return on investment than ABC Taiwan. However, Wei Chuan Foods is 4.14 times less risky than ABC Taiwan. It trades about -0.37 of its potential returns per unit of risk. ABC Taiwan Electronics is currently generating about -0.21 per unit of risk. If you would invest 1,805 in Wei Chuan Foods on October 13, 2024 and sell it today you would lose (50.00) from holding Wei Chuan Foods or give up 2.77% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Wei Chuan Foods vs. ABC Taiwan Electronics
Performance |
| Timeline |
| Wei Chuan Foods |
| ABC Taiwan Electronics |
Wei Chuan and ABC Taiwan Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Wei Chuan and ABC Taiwan
The main advantage of trading using opposite Wei Chuan and ABC Taiwan positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Wei Chuan position performs unexpectedly, ABC Taiwan 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 ABC Taiwan will offset losses from the drop in ABC Taiwan's long position.| Wei Chuan vs. Uni President Enterprises Corp | Wei Chuan vs. Taisun Enterprise Co | Wei Chuan vs. AGV Products Corp | Wei Chuan vs. Great Wall Enterprise |
| ABC Taiwan vs. Wei Chuan Foods | ABC Taiwan vs. Galaxy Software Services | ABC Taiwan vs. Compal Broadband Networks | ABC Taiwan vs. Chung Lien Transportation |
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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.
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