Correlation Between Lan Fa and Tainan Spinning
Can any of the company-specific risk be diversified away by investing in both Lan Fa and Tainan Spinning 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 Lan Fa and Tainan Spinning into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Lan Fa Textile and Tainan Spinning Co, you can compare the effects of market volatilities on Lan Fa and Tainan Spinning 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 Lan Fa with a short position of Tainan Spinning. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lan Fa and Tainan Spinning.
Diversification Opportunities for Lan Fa and Tainan Spinning
0.87 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Lan and Tainan is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Lan Fa Textile and Tainan Spinning Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tainan Spinning and Lan Fa 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 Lan Fa Textile are associated (or correlated) with Tainan Spinning. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tainan Spinning has no effect on the direction of Lan Fa i.e., Lan Fa and Tainan Spinning go up and down completely randomly.
Pair Corralation between Lan Fa and Tainan Spinning
Assuming the 90 days trading horizon Lan Fa Textile is expected to generate 1.04 times more return on investment than Tainan Spinning. However, Lan Fa is 1.04 times more volatile than Tainan Spinning Co. It trades about 0.03 of its potential returns per unit of risk. Tainan Spinning Co is currently generating about -0.01 per unit of risk. If you would invest 848.00 in Lan Fa Textile on September 3, 2024 and sell it today you would earn a total of 145.00 from holding Lan Fa Textile or generate 17.1% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Lan Fa Textile vs. Tainan Spinning Co
Performance |
| Timeline |
| Lan Fa Textile |
| Tainan Spinning |
Lan Fa and Tainan Spinning Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Lan Fa and Tainan Spinning
The main advantage of trading using opposite Lan Fa and Tainan Spinning positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lan Fa position performs unexpectedly, Tainan Spinning 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 Tainan Spinning will offset losses from the drop in Tainan Spinning's long position.| Lan Fa vs. Lealea Enterprise Co | Lan Fa vs. Li Peng Enterprise | Lan Fa vs. De Licacy Industrial | Lan Fa vs. Chyang Sheng Dyeing |
| Tainan Spinning vs. Lealea Enterprise Co | Tainan Spinning vs. China Petrochemical Development | Tainan Spinning vs. Li Peng Enterprise | Tainan Spinning vs. Oriental Union Chemical |
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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.
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