Correlation Between Hwa Fong and Taiwan Speciality
Can any of the company-specific risk be diversified away by investing in both Hwa Fong and Taiwan Speciality 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 Hwa Fong and Taiwan Speciality into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Hwa Fong Rubber and Taiwan Speciality Chemicals, you can compare the effects of market volatilities on Hwa Fong and Taiwan Speciality 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 Hwa Fong with a short position of Taiwan Speciality. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hwa Fong and Taiwan Speciality.
Diversification Opportunities for Hwa Fong and Taiwan Speciality
-0.17 | Correlation Coefficient |
Good diversification
The 3 months correlation between Hwa and Taiwan is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding Hwa Fong Rubber and Taiwan Speciality Chemicals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Taiwan Speciality and Hwa Fong 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 Hwa Fong Rubber are associated (or correlated) with Taiwan Speciality. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Taiwan Speciality has no effect on the direction of Hwa Fong i.e., Hwa Fong and Taiwan Speciality go up and down completely randomly.
Pair Corralation between Hwa Fong and Taiwan Speciality
Assuming the 90 days trading horizon Hwa Fong Rubber is expected to under-perform the Taiwan Speciality. But the stock apears to be less risky and, when comparing its historical volatility, Hwa Fong Rubber is 8.25 times less risky than Taiwan Speciality. The stock trades about -0.03 of its potential returns per unit of risk. The Taiwan Speciality Chemicals is currently generating about 0.61 of returns per unit of risk over similar time horizon. If you would invest 17,500 in Taiwan Speciality Chemicals on October 28, 2024 and sell it today you would earn a total of 8,900 from holding Taiwan Speciality Chemicals or generate 50.86% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Hwa Fong Rubber vs. Taiwan Speciality Chemicals
Performance |
| Timeline |
| Hwa Fong Rubber |
| Taiwan Speciality |
Hwa Fong and Taiwan Speciality Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Hwa Fong and Taiwan Speciality
The main advantage of trading using opposite Hwa Fong and Taiwan Speciality positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Hwa Fong position performs unexpectedly, Taiwan Speciality 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 Speciality will offset losses from the drop in Taiwan Speciality's long position.| Hwa Fong vs. Kenda Rubber Industrial | Hwa Fong vs. Cheng Shin Rubber | Hwa Fong vs. Federal Corp | Hwa Fong vs. Nankang Rubber Tire |
| Taiwan Speciality vs. Taiwan Semiconductor Manufacturing | Taiwan Speciality vs. Hon Hai Precision | Taiwan Speciality vs. MediaTek | Taiwan Speciality vs. Chunghwa Telecom Co |
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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