Correlation Between Taiwan Fertilizer and Lien Hwa
Can any of the company-specific risk be diversified away by investing in both Taiwan Fertilizer 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 Fertilizer 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 Fertilizer Co and Lien Hwa Industrial, you can compare the effects of market volatilities on Taiwan Fertilizer 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 Fertilizer with a short position of Lien Hwa. Check out your portfolio center. Please also check ongoing floating volatility patterns of Taiwan Fertilizer and Lien Hwa.
Diversification Opportunities for Taiwan Fertilizer and Lien Hwa
0.92 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Taiwan and Lien is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Fertilizer Co 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 Fertilizer 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 Fertilizer Co 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 Fertilizer i.e., Taiwan Fertilizer and Lien Hwa go up and down completely randomly.
Pair Corralation between Taiwan Fertilizer and Lien Hwa
Assuming the 90 days trading horizon Taiwan Fertilizer Co is expected to generate 0.73 times more return on investment than Lien Hwa. However, Taiwan Fertilizer Co is 1.37 times less risky than Lien Hwa. It trades about 0.3 of its potential returns per unit of risk. Lien Hwa Industrial is currently generating about 0.22 per unit of risk. If you would invest 5,180 in Taiwan Fertilizer Co on November 27, 2024 and sell it today you would earn a total of 220.00 from holding Taiwan Fertilizer Co or generate 4.25% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Taiwan Fertilizer Co vs. Lien Hwa Industrial
Performance |
| Timeline |
| Taiwan Fertilizer |
| Lien Hwa Industrial |
Taiwan Fertilizer and Lien Hwa Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Taiwan Fertilizer and Lien Hwa
The main advantage of trading using opposite Taiwan Fertilizer and Lien Hwa positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Taiwan Fertilizer 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 Fertilizer vs. Taiwan Cement Corp | Taiwan Fertilizer vs. Far Eastern New | Taiwan Fertilizer vs. Asia Cement Corp | Taiwan Fertilizer vs. Formosa Plastics Corp |
| Lien Hwa vs. Great Wall Enterprise | Lien Hwa vs. Lian Hwa Foods | Lien Hwa vs. Charoen Pokphand Enterprise | Lien Hwa vs. Uni President Enterprises Corp |
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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.
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