Correlation Between Taiwan Tea and China Petrochemical
Can any of the company-specific risk be diversified away by investing in both Taiwan Tea and China Petrochemical 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 Tea and China Petrochemical into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Taiwan Tea Corp and China Petrochemical Development, you can compare the effects of market volatilities on Taiwan Tea and China Petrochemical 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 Tea with a short position of China Petrochemical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Taiwan Tea and China Petrochemical.
Diversification Opportunities for Taiwan Tea and China Petrochemical
0.37 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Taiwan and China is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Tea Corp and China Petrochemical Developmen in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Petrochemical and Taiwan Tea 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 Tea Corp are associated (or correlated) with China Petrochemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Petrochemical has no effect on the direction of Taiwan Tea i.e., Taiwan Tea and China Petrochemical go up and down completely randomly.
Pair Corralation between Taiwan Tea and China Petrochemical
Assuming the 90 days trading horizon Taiwan Tea Corp is expected to generate 0.79 times more return on investment than China Petrochemical. However, Taiwan Tea Corp is 1.27 times less risky than China Petrochemical. It trades about -0.16 of its potential returns per unit of risk. China Petrochemical Development is currently generating about -0.2 per unit of risk. If you would invest 2,260 in Taiwan Tea Corp on August 30, 2024 and sell it today you would lose (200.00) from holding Taiwan Tea Corp or give up 8.85% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Taiwan Tea Corp vs. China Petrochemical Developmen
Performance |
| Timeline |
| Taiwan Tea Corp |
| China Petrochemical |
Taiwan Tea and China Petrochemical Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Taiwan Tea and China Petrochemical
The main advantage of trading using opposite Taiwan Tea and China Petrochemical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Taiwan Tea position performs unexpectedly, China Petrochemical 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 China Petrochemical will offset losses from the drop in China Petrochemical's long position.The idea behind Taiwan Tea Corp and China Petrochemical Development 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.| China Petrochemical vs. USI Corp | China Petrochemical vs. Grand Pacific Petrochemical | China Petrochemical vs. Taiwan Styrene Monomer | China Petrochemical vs. China Steel Corp |
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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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