Correlation Between Eternal Materials and Taiwan Fertilizer

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

Diversification Opportunities for Eternal Materials and Taiwan Fertilizer

0.42
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Eternal and Taiwan is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Eternal Materials Co and Taiwan Fertilizer Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Taiwan Fertilizer and Eternal Materials 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 Eternal Materials Co are associated (or correlated) with Taiwan Fertilizer. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Taiwan Fertilizer has no effect on the direction of Eternal Materials i.e., Eternal Materials and Taiwan Fertilizer go up and down completely randomly.

Pair Corralation between Eternal Materials and Taiwan Fertilizer

Assuming the 90 days trading horizon Eternal Materials Co is expected to under-perform the Taiwan Fertilizer. In addition to that, Eternal Materials is 1.02 times more volatile than Taiwan Fertilizer Co. It trades about -0.17 of its total potential returns per unit of risk. Taiwan Fertilizer Co is currently generating about -0.03 per unit of volatility. If you would invest  5,700  in Taiwan Fertilizer Co on August 30, 2024 and sell it today you would lose (50.00) from holding Taiwan Fertilizer Co or give up 0.88% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Eternal Materials Co  vs.  Taiwan Fertilizer Co

 Performance 
       Timeline  
Eternal Materials 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Eternal Materials Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Eternal Materials is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.
Taiwan Fertilizer 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Taiwan Fertilizer Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Taiwan Fertilizer is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Eternal Materials and Taiwan Fertilizer Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Eternal Materials and Taiwan Fertilizer

The main advantage of trading using opposite Eternal Materials and Taiwan Fertilizer positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Eternal Materials position performs unexpectedly, Taiwan Fertilizer 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 Fertilizer will offset losses from the drop in Taiwan Fertilizer's long position.
The idea behind Eternal Materials Co and Taiwan Fertilizer Co 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.

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