Correlation Between Chia Yi and TMP Steel
Can any of the company-specific risk be diversified away by investing in both Chia Yi and TMP Steel 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 Chia Yi and TMP Steel into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Chia Yi Steel and TMP Steel, you can compare the effects of market volatilities on Chia Yi and TMP Steel 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 Chia Yi with a short position of TMP Steel. Check out your portfolio center. Please also check ongoing floating volatility patterns of Chia Yi and TMP Steel.
Diversification Opportunities for Chia Yi and TMP Steel
Good diversification
The 3 months correlation between Chia and TMP is -0.07. Overlapping area represents the amount of risk that can be diversified away by holding Chia Yi Steel and TMP Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TMP Steel and Chia Yi 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 Chia Yi Steel are associated (or correlated) with TMP Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TMP Steel has no effect on the direction of Chia Yi i.e., Chia Yi and TMP Steel go up and down completely randomly.
Pair Corralation between Chia Yi and TMP Steel
Assuming the 90 days trading horizon Chia Yi Steel is expected to under-perform the TMP Steel. In addition to that, Chia Yi is 1.15 times more volatile than TMP Steel. It trades about -0.08 of its total potential returns per unit of risk. TMP Steel is currently generating about 0.09 per unit of volatility. If you would invest 2,715 in TMP Steel on November 3, 2024 and sell it today you would earn a total of 35.00 from holding TMP Steel or generate 1.29% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Chia Yi Steel vs. TMP Steel
Performance |
| Timeline |
| Chia Yi Steel |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Insignificant
| TMP Steel |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
Chia Yi and TMP Steel Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Chia Yi and TMP Steel
The main advantage of trading using opposite Chia Yi and TMP Steel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Chia Yi position performs unexpectedly, TMP Steel 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 TMP Steel will offset losses from the drop in TMP Steel's long position.The idea behind Chia Yi Steel and TMP Steel 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.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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.
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