Correlation Between Elite Material and ABC Taiwan
Can any of the company-specific risk be diversified away by investing in both Elite Material and ABC Taiwan 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 Elite Material and ABC Taiwan into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Elite Material Co and ABC Taiwan Electronics, you can compare the effects of market volatilities on Elite Material and ABC Taiwan 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 Elite Material with a short position of ABC Taiwan. Check out your portfolio center. Please also check ongoing floating volatility patterns of Elite Material and ABC Taiwan.
Diversification Opportunities for Elite Material and ABC Taiwan
-0.67 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Elite and ABC is -0.67. Overlapping area represents the amount of risk that can be diversified away by holding Elite Material Co and ABC Taiwan Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ABC Taiwan Electronics and Elite Material 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 Elite Material Co are associated (or correlated) with ABC Taiwan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ABC Taiwan Electronics has no effect on the direction of Elite Material i.e., Elite Material and ABC Taiwan go up and down completely randomly.
Pair Corralation between Elite Material and ABC Taiwan
Assuming the 90 days trading horizon Elite Material Co is expected to generate 1.36 times more return on investment than ABC Taiwan. However, Elite Material is 1.36 times more volatile than ABC Taiwan Electronics. It trades about -0.01 of its potential returns per unit of risk. ABC Taiwan Electronics is currently generating about -0.18 per unit of risk. If you would invest 60,800 in Elite Material Co on October 23, 2024 and sell it today you would lose (500.00) from holding Elite Material Co or give up 0.82% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Elite Material Co vs. ABC Taiwan Electronics
Performance |
| Timeline |
| Elite Material |
| ABC Taiwan Electronics |
Elite Material and ABC Taiwan Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Elite Material and ABC Taiwan
The main advantage of trading using opposite Elite Material and ABC Taiwan positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Elite Material position performs unexpectedly, ABC Taiwan 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 ABC Taiwan will offset losses from the drop in ABC Taiwan's long position.| Elite Material vs. Compeq Manufacturing Co | Elite Material vs. ITEQ Corp | Elite Material vs. Unimicron Technology Corp | Elite Material vs. Chicony Electronics Co |
| ABC Taiwan vs. Elite Material Co | ABC Taiwan vs. Simple Mart Retail | ABC Taiwan vs. ESUN Financial Holding | ABC Taiwan vs. Taichung Commercial Bank |
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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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