Correlation Between China Petrochemical and Taiwan Tea
Can any of the company-specific risk be diversified away by investing in both China Petrochemical and Taiwan Tea 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 China Petrochemical and Taiwan Tea into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between China Petrochemical Development and Taiwan Tea Corp, you can compare the effects of market volatilities on China Petrochemical and Taiwan Tea 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 China Petrochemical with a short position of Taiwan Tea. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Petrochemical and Taiwan Tea.
Diversification Opportunities for China Petrochemical and Taiwan Tea
0.38 | Correlation Coefficient |
Weak diversification
The 3 months correlation between China and Taiwan is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding China Petrochemical Developmen and Taiwan Tea Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Taiwan Tea Corp and China Petrochemical 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 China Petrochemical Development are associated (or correlated) with Taiwan Tea. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Taiwan Tea Corp has no effect on the direction of China Petrochemical i.e., China Petrochemical and Taiwan Tea go up and down completely randomly.
Pair Corralation between China Petrochemical and Taiwan Tea
Assuming the 90 days trading horizon China Petrochemical Development is expected to generate 0.93 times more return on investment than Taiwan Tea. However, China Petrochemical Development is 1.07 times less risky than Taiwan Tea. It trades about -0.02 of its potential returns per unit of risk. Taiwan Tea Corp is currently generating about -0.05 per unit of risk. If you would invest 820.00 in China Petrochemical Development on August 26, 2024 and sell it today you would lose (7.00) from holding China Petrochemical Development or give up 0.85% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
China Petrochemical Developmen vs. Taiwan Tea Corp
Performance |
| Timeline |
| China Petrochemical |
| Taiwan Tea Corp |
China Petrochemical and Taiwan Tea Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with China Petrochemical and Taiwan Tea
The main advantage of trading using opposite China Petrochemical and Taiwan Tea positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China Petrochemical position performs unexpectedly, Taiwan Tea 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 Taiwan Tea will offset losses from the drop in Taiwan Tea's long position.| China Petrochemical vs. USI Corp | China Petrochemical vs. Grand Pacific Petrochemical | China Petrochemical vs. Taiwan Styrene Monomer | China Petrochemical vs. China Steel Corp |
| Taiwan Tea vs. Far Eastern Department | Taiwan Tea vs. BES Engineering Co | Taiwan Tea vs. Ton Yi Industrial | Taiwan Tea vs. Evergreen International Storage |
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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.
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