Correlation Between Taiwan Fire and Taichung Commercial
Can any of the company-specific risk be diversified away by investing in both Taiwan Fire 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 Taiwan Fire and Taichung Commercial into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Taiwan Fire Marine and Taichung Commercial Bank, you can compare the effects of market volatilities on Taiwan Fire 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 Taiwan Fire with a short position of Taichung Commercial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Taiwan Fire and Taichung Commercial.
Diversification Opportunities for Taiwan Fire and Taichung Commercial
0.03 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Taiwan and Taichung is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Fire Marine 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 Taiwan Fire 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 Fire Marine 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 Taiwan Fire i.e., Taiwan Fire and Taichung Commercial go up and down completely randomly.
Pair Corralation between Taiwan Fire and Taichung Commercial
Assuming the 90 days trading horizon Taiwan Fire is expected to generate 1.06 times less return on investment than Taichung Commercial. But when comparing it to its historical volatility, Taiwan Fire Marine is 1.02 times less risky than Taichung Commercial. It trades about 0.08 of its potential returns per unit of risk. Taichung Commercial Bank is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest 1,305 in Taichung Commercial Bank on September 3, 2024 and sell it today you would earn a total of 570.00 from holding Taichung Commercial Bank or generate 43.68% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Taiwan Fire Marine vs. Taichung Commercial Bank
Performance |
| Timeline |
| Taiwan Fire Marine |
| Taichung Commercial Bank |
Taiwan Fire and Taichung Commercial Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Taiwan Fire and Taichung Commercial
The main advantage of trading using opposite Taiwan Fire and Taichung Commercial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Taiwan Fire 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.| Taiwan Fire vs. Shinkong Insurance Co | Taiwan Fire vs. China Bills Finance | Taiwan Fire vs. Taiwan Business Bank | Taiwan Fire vs. Far Eastern International |
| Taichung Commercial vs. Central Reinsurance Corp | Taichung Commercial vs. Huaku Development Co | Taichung Commercial vs. Chailease Holding Co | Taichung Commercial vs. CTBC Financial Holding |
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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.
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