Correlation Between ABC Taiwan and Elan Microelectronics
Can any of the company-specific risk be diversified away by investing in both ABC Taiwan and Elan Microelectronics 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 Elan Microelectronics 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 Elan Microelectronics Corp, you can compare the effects of market volatilities on ABC Taiwan and Elan Microelectronics 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 Elan Microelectronics. Check out your portfolio center. Please also check ongoing floating volatility patterns of ABC Taiwan and Elan Microelectronics.
Diversification Opportunities for ABC Taiwan and Elan Microelectronics
-0.22 | Correlation Coefficient |
Very good diversification
The 3 months correlation between ABC and Elan is -0.22. Overlapping area represents the amount of risk that can be diversified away by holding ABC Taiwan Electronics and Elan Microelectronics Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Elan Microelectronics 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 Elan Microelectronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Elan Microelectronics has no effect on the direction of ABC Taiwan i.e., ABC Taiwan and Elan Microelectronics go up and down completely randomly.
Pair Corralation between ABC Taiwan and Elan Microelectronics
Assuming the 90 days trading horizon ABC Taiwan Electronics is expected to under-perform the Elan Microelectronics. But the stock apears to be less risky and, when comparing its historical volatility, ABC Taiwan Electronics is 2.34 times less risky than Elan Microelectronics. The stock trades about -0.04 of its potential returns per unit of risk. The Elan Microelectronics Corp is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest 14,900 in Elan Microelectronics Corp on November 27, 2024 and sell it today you would earn a total of 1,100 from holding Elan Microelectronics Corp or generate 7.38% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
ABC Taiwan Electronics vs. Elan Microelectronics Corp
Performance |
| Timeline |
| ABC Taiwan Electronics |
| Elan Microelectronics |
ABC Taiwan and Elan Microelectronics Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with ABC Taiwan and Elan Microelectronics
The main advantage of trading using opposite ABC Taiwan and Elan Microelectronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ABC Taiwan position performs unexpectedly, Elan Microelectronics 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 Elan Microelectronics will offset losses from the drop in Elan Microelectronics' long position.| ABC Taiwan vs. Hwa Fong Rubber | ABC Taiwan vs. Jetway Information Co | ABC Taiwan vs. Fortune Information Systems | ABC Taiwan vs. Fulin Plastic Industry |
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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.
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