Correlation Between Newretail and Taiwan Taomee
Can any of the company-specific risk be diversified away by investing in both Newretail and Taiwan Taomee 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 Newretail and Taiwan Taomee into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Newretail Co and Taiwan Taomee Co, you can compare the effects of market volatilities on Newretail and Taiwan Taomee 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 Newretail with a short position of Taiwan Taomee. Check out your portfolio center. Please also check ongoing floating volatility patterns of Newretail and Taiwan Taomee.
Diversification Opportunities for Newretail and Taiwan Taomee
-0.05 | Correlation Coefficient |
Good diversification
The 3 months correlation between Newretail and Taiwan is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding Newretail Co and Taiwan Taomee Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Taiwan Taomee and Newretail 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 Newretail Co are associated (or correlated) with Taiwan Taomee. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Taiwan Taomee has no effect on the direction of Newretail i.e., Newretail and Taiwan Taomee go up and down completely randomly.
Pair Corralation between Newretail and Taiwan Taomee
Assuming the 90 days trading horizon Newretail Co is expected to generate 3.56 times more return on investment than Taiwan Taomee. However, Newretail is 3.56 times more volatile than Taiwan Taomee Co. It trades about 0.22 of its potential returns per unit of risk. Taiwan Taomee Co is currently generating about 0.04 per unit of risk. If you would invest 2,040 in Newretail Co on August 29, 2024 and sell it today you would earn a total of 475.00 from holding Newretail Co or generate 23.28% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Newretail Co vs. Taiwan Taomee Co
Performance |
| Timeline |
| Newretail |
| Taiwan Taomee |
Newretail and Taiwan Taomee Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Newretail and Taiwan Taomee
The main advantage of trading using opposite Newretail and Taiwan Taomee positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Newretail position performs unexpectedly, Taiwan Taomee 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 Taiwan Taomee will offset losses from the drop in Taiwan Taomee's long position.The idea behind Newretail Co and Taiwan Taomee 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..
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