Correlation Between ABC Taiwan and TECO Electric
Can any of the company-specific risk be diversified away by investing in both ABC Taiwan and TECO Electric 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 ABC Taiwan and TECO Electric into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between ABC Taiwan Electronics and TECO Electric Machinery, you can compare the effects of market volatilities on ABC Taiwan and TECO Electric 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 ABC Taiwan with a short position of TECO Electric. Check out your portfolio center. Please also check ongoing floating volatility patterns of ABC Taiwan and TECO Electric.
Diversification Opportunities for ABC Taiwan and TECO Electric
0.84 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between ABC and TECO is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding ABC Taiwan Electronics and TECO Electric Machinery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TECO Electric Machinery and ABC Taiwan 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 ABC Taiwan Electronics are associated (or correlated) with TECO Electric. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TECO Electric Machinery has no effect on the direction of ABC Taiwan i.e., ABC Taiwan and TECO Electric go up and down completely randomly.
Pair Corralation between ABC Taiwan and TECO Electric
Assuming the 90 days trading horizon ABC Taiwan Electronics is expected to generate 0.87 times more return on investment than TECO Electric. However, ABC Taiwan Electronics is 1.14 times less risky than TECO Electric. It trades about 0.04 of its potential returns per unit of risk. TECO Electric Machinery is currently generating about -0.02 per unit of risk. If you would invest 2,135 in ABC Taiwan Electronics on September 3, 2024 and sell it today you would earn a total of 160.00 from holding ABC Taiwan Electronics or generate 7.49% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
ABC Taiwan Electronics vs. TECO Electric Machinery
Performance |
| Timeline |
| ABC Taiwan Electronics |
| TECO Electric Machinery |
ABC Taiwan and TECO Electric Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with ABC Taiwan and TECO Electric
The main advantage of trading using opposite ABC Taiwan and TECO Electric positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ABC Taiwan position performs unexpectedly, TECO Electric 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 TECO Electric will offset losses from the drop in TECO Electric's long position.| ABC Taiwan vs. Hon Hai Precision | ABC Taiwan vs. Delta Electronics | ABC Taiwan vs. LARGAN Precision Co | ABC Taiwan vs. AU Optronics |
| TECO Electric vs. Universal Microelectronics Co | TECO Electric vs. AVerMedia Technologies | TECO Electric vs. Symtek Automation Asia | TECO Electric vs. WiseChip Semiconductor |
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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..
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