Correlation Between Taiwan Business and Bank of Kaohsiung
Can any of the company-specific risk be diversified away by investing in both Taiwan Business and Bank of Kaohsiung 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 Business and Bank of Kaohsiung into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Taiwan Business Bank and Bank of Kaohsiung, you can compare the effects of market volatilities on Taiwan Business and Bank of Kaohsiung 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 Business with a short position of Bank of Kaohsiung. Check out your portfolio center. Please also check ongoing floating volatility patterns of Taiwan Business and Bank of Kaohsiung.
Diversification Opportunities for Taiwan Business and Bank of Kaohsiung
0.78 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Taiwan and Bank is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Business Bank and Bank of Kaohsiung in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bank of Kaohsiung and Taiwan Business 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 Business Bank are associated (or correlated) with Bank of Kaohsiung. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bank of Kaohsiung has no effect on the direction of Taiwan Business i.e., Taiwan Business and Bank of Kaohsiung go up and down completely randomly.
Pair Corralation between Taiwan Business and Bank of Kaohsiung
Assuming the 90 days trading horizon Taiwan Business is expected to generate 1.28 times less return on investment than Bank of Kaohsiung. But when comparing it to its historical volatility, Taiwan Business Bank is 1.05 times less risky than Bank of Kaohsiung. It trades about 0.05 of its potential returns per unit of risk. Bank of Kaohsiung is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest 1,150 in Bank of Kaohsiung on October 24, 2024 and sell it today you would earn a total of 10.00 from holding Bank of Kaohsiung or generate 0.87% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Taiwan Business Bank vs. Bank of Kaohsiung
Performance |
| Timeline |
| Taiwan Business Bank |
| Bank of Kaohsiung |
Taiwan Business and Bank of Kaohsiung Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Taiwan Business and Bank of Kaohsiung
The main advantage of trading using opposite Taiwan Business and Bank of Kaohsiung positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Taiwan Business position performs unexpectedly, Bank of Kaohsiung 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 Bank of Kaohsiung will offset losses from the drop in Bank of Kaohsiung's long position.| Taiwan Business vs. First Financial Holding | Taiwan Business vs. Chang Hwa Commercial | Taiwan Business vs. Sinopac Financial Holdings | Taiwan Business vs. Taishin Financial Holding |
| Bank of Kaohsiung vs. Taichung Commercial Bank | Bank of Kaohsiung vs. Far Eastern International | Bank of Kaohsiung vs. Taiwan Business Bank | Bank of Kaohsiung vs. Sinopac Financial Holdings |
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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.
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