Correlation Between Taiwan Business and Far Eastern
Can any of the company-specific risk be diversified away by investing in both Taiwan Business and Far Eastern 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 Far Eastern 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 Far Eastern Department, you can compare the effects of market volatilities on Taiwan Business and Far Eastern 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 Far Eastern. Check out your portfolio center. Please also check ongoing floating volatility patterns of Taiwan Business and Far Eastern.
Diversification Opportunities for Taiwan Business and Far Eastern
0.65 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Taiwan and Far is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Business Bank and Far Eastern Department in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Far Eastern Department 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 Far Eastern. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Far Eastern Department has no effect on the direction of Taiwan Business i.e., Taiwan Business and Far Eastern go up and down completely randomly.
Pair Corralation between Taiwan Business and Far Eastern
Assuming the 90 days trading horizon Taiwan Business Bank is expected to generate 1.2 times more return on investment than Far Eastern. However, Taiwan Business is 1.2 times more volatile than Far Eastern Department. It trades about -0.03 of its potential returns per unit of risk. Far Eastern Department is currently generating about -0.11 per unit of risk. If you would invest 1,670 in Taiwan Business Bank on August 28, 2024 and sell it today you would lose (145.00) from holding Taiwan Business Bank or give up 8.68% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Taiwan Business Bank vs. Far Eastern Department
Performance |
| Timeline |
| Taiwan Business Bank |
| Far Eastern Department |
Taiwan Business and Far Eastern Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Taiwan Business and Far Eastern
The main advantage of trading using opposite Taiwan Business and Far Eastern positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Taiwan Business position performs unexpectedly, Far Eastern 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 Far Eastern will offset losses from the drop in Far Eastern'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 |
| Far Eastern vs. Taiwan Semiconductor Manufacturing | Far Eastern vs. Hon Hai Precision | Far Eastern vs. MediaTek | Far Eastern vs. Chunghwa Telecom Co |
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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.
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