Correlation Between Taiwan Business and O Bank
Can any of the company-specific risk be diversified away by investing in both Taiwan Business and O Bank 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 O Bank 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 O Bank Co, you can compare the effects of market volatilities on Taiwan Business and O Bank 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 O Bank. Check out your portfolio center. Please also check ongoing floating volatility patterns of Taiwan Business and O Bank.
Diversification Opportunities for Taiwan Business and O Bank
0.46 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Taiwan and 2897 is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Business Bank and O Bank Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on O Bank 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 O Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of O Bank has no effect on the direction of Taiwan Business i.e., Taiwan Business and O Bank go up and down completely randomly.
Pair Corralation between Taiwan Business and O Bank
Assuming the 90 days trading horizon Taiwan Business Bank is expected to under-perform the O Bank. In addition to that, Taiwan Business is 1.46 times more volatile than O Bank Co. It trades about -0.07 of its total potential returns per unit of risk. O Bank Co is currently generating about 0.17 per unit of volatility. If you would invest 983.00 in O Bank Co on November 5, 2024 and sell it today you would earn a total of 10.00 from holding O Bank Co or generate 1.02% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Taiwan Business Bank vs. O Bank Co
Performance |
| Timeline |
| Taiwan Business Bank |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
| O Bank |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Insignificant
Taiwan Business and O Bank Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Taiwan Business and O Bank
The main advantage of trading using opposite Taiwan Business and O Bank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Taiwan Business position performs unexpectedly, O Bank 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 O Bank will offset losses from the drop in O Bank's long position.The idea behind Taiwan Business Bank and O Bank 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.
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