Correlation Between ABC Taiwan and Elite Material
Can any of the company-specific risk be diversified away by investing in both ABC Taiwan and Elite Material 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 Elite Material 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 Elite Material Co, you can compare the effects of market volatilities on ABC Taiwan and Elite Material 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 Elite Material. Check out your portfolio center. Please also check ongoing floating volatility patterns of ABC Taiwan and Elite Material.
Diversification Opportunities for ABC Taiwan and Elite Material
-0.67 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between ABC and Elite is -0.67. Overlapping area represents the amount of risk that can be diversified away by holding ABC Taiwan Electronics and Elite Material Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Elite Material 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 Elite Material. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Elite Material has no effect on the direction of ABC Taiwan i.e., ABC Taiwan and Elite Material go up and down completely randomly.
Pair Corralation between ABC Taiwan and Elite Material
Assuming the 90 days trading horizon ABC Taiwan Electronics is expected to under-perform the Elite Material. But the stock apears to be less risky and, when comparing its historical volatility, ABC Taiwan Electronics is 1.39 times less risky than Elite Material. The stock trades about -0.23 of its potential returns per unit of risk. The Elite Material Co is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest 48,200 in Elite Material Co on October 23, 2024 and sell it today you would earn a total of 12,100 from holding Elite Material Co or generate 25.1% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
ABC Taiwan Electronics vs. Elite Material Co
Performance |
| Timeline |
| ABC Taiwan Electronics |
| Elite Material |
ABC Taiwan and Elite Material Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with ABC Taiwan and Elite Material
The main advantage of trading using opposite ABC Taiwan and Elite Material positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ABC Taiwan position performs unexpectedly, Elite Material 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 Elite Material will offset losses from the drop in Elite Material's long position.| ABC Taiwan vs. Elite Material Co | ABC Taiwan vs. Simple Mart Retail | ABC Taiwan vs. ESUN Financial Holding | ABC Taiwan vs. Taichung Commercial Bank |
| Elite Material vs. Compeq Manufacturing Co | Elite Material vs. ITEQ Corp | Elite Material vs. Unimicron Technology Corp | Elite Material vs. Chicony Electronics 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.
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