Correlation Between Kings Town and Taichung Commercial
Can any of the company-specific risk be diversified away by investing in both Kings Town and Taichung Commercial 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 Kings Town and Taichung Commercial into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Kings Town Bank and Taichung Commercial Bank, you can compare the effects of market volatilities on Kings Town and Taichung Commercial 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 Kings Town with a short position of Taichung Commercial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Kings Town and Taichung Commercial.
Diversification Opportunities for Kings Town and Taichung Commercial
0.18 | Correlation Coefficient |
Average diversification
The 3 months correlation between Kings and Taichung is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding Kings Town Bank and Taichung Commercial Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Taichung Commercial Bank and Kings Town 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 Kings Town Bank are associated (or correlated) with Taichung Commercial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Taichung Commercial Bank has no effect on the direction of Kings Town i.e., Kings Town and Taichung Commercial go up and down completely randomly.
Pair Corralation between Kings Town and Taichung Commercial
Assuming the 90 days trading horizon Kings Town Bank is expected to under-perform the Taichung Commercial. In addition to that, Kings Town is 1.84 times more volatile than Taichung Commercial Bank. It trades about -0.01 of its total potential returns per unit of risk. Taichung Commercial Bank is currently generating about 0.13 per unit of volatility. If you would invest 1,650 in Taichung Commercial Bank on November 3, 2024 and sell it today you would earn a total of 240.00 from holding Taichung Commercial Bank or generate 14.55% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Kings Town Bank vs. Taichung Commercial Bank
Performance |
| Timeline |
| Kings Town Bank |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Weak
| Taichung Commercial Bank |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
OK
Kings Town and Taichung Commercial Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Kings Town and Taichung Commercial
The main advantage of trading using opposite Kings Town and Taichung Commercial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Kings Town position performs unexpectedly, Taichung Commercial 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 Taichung Commercial will offset losses from the drop in Taichung Commercial's long position.The idea behind Kings Town Bank and Taichung Commercial Bank 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.
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