Correlation Between Taiwan Fire and Shinkong Insurance
Can any of the company-specific risk be diversified away by investing in both Taiwan Fire and Shinkong Insurance 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 Shinkong Insurance 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 Shinkong Insurance Co, you can compare the effects of market volatilities on Taiwan Fire and Shinkong Insurance 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 Shinkong Insurance. Check out your portfolio center. Please also check ongoing floating volatility patterns of Taiwan Fire and Shinkong Insurance.
Diversification Opportunities for Taiwan Fire and Shinkong Insurance
0.56 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Taiwan and Shinkong is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Fire Marine and Shinkong Insurance Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shinkong Insurance 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 Shinkong Insurance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shinkong Insurance has no effect on the direction of Taiwan Fire i.e., Taiwan Fire and Shinkong Insurance go up and down completely randomly.
Pair Corralation between Taiwan Fire and Shinkong Insurance
Assuming the 90 days trading horizon Taiwan Fire is expected to generate 2.81 times less return on investment than Shinkong Insurance. But when comparing it to its historical volatility, Taiwan Fire Marine is 1.44 times less risky than Shinkong Insurance. It trades about 0.03 of its potential returns per unit of risk. Shinkong Insurance Co is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest 9,440 in Shinkong Insurance Co on November 9, 2024 and sell it today you would earn a total of 1,010 from holding Shinkong Insurance Co or generate 10.7% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Taiwan Fire Marine vs. Shinkong Insurance Co
Performance |
| Timeline |
| Taiwan Fire Marine |
Risk-Adjusted Performance
OK
Weak | Strong |
| Shinkong Insurance |
Risk-Adjusted Performance
Insignificant
Weak | Strong |
Taiwan Fire and Shinkong Insurance Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Taiwan Fire and Shinkong Insurance
The main advantage of trading using opposite Taiwan Fire and Shinkong Insurance positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Taiwan Fire position performs unexpectedly, Shinkong Insurance 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 Shinkong Insurance will offset losses from the drop in Shinkong Insurance's long position.The idea behind Taiwan Fire Marine and Shinkong Insurance Co 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.
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