Correlation Between ABC Taiwan and Scan D
Can any of the company-specific risk be diversified away by investing in both ABC Taiwan and Scan D 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 Scan D 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 Scan D, you can compare the effects of market volatilities on ABC Taiwan and Scan D 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 Scan D. Check out your portfolio center. Please also check ongoing floating volatility patterns of ABC Taiwan and Scan D.
Diversification Opportunities for ABC Taiwan and Scan D
0.49 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between ABC and Scan is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding ABC Taiwan Electronics and Scan D in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Scan D 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 Scan D. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Scan D has no effect on the direction of ABC Taiwan i.e., ABC Taiwan and Scan D go up and down completely randomly.
Pair Corralation between ABC Taiwan and Scan D
Assuming the 90 days trading horizon ABC Taiwan Electronics is expected to generate 1.84 times more return on investment than Scan D. However, ABC Taiwan is 1.84 times more volatile than Scan D. It trades about -0.01 of its potential returns per unit of risk. Scan D is currently generating about -0.03 per unit of risk. If you would invest 2,410 in ABC Taiwan Electronics on October 12, 2024 and sell it today you would lose (425.00) from holding ABC Taiwan Electronics or give up 17.63% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
ABC Taiwan Electronics vs. Scan D
Performance |
| Timeline |
| ABC Taiwan Electronics |
| Scan D |
ABC Taiwan and Scan D Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with ABC Taiwan and Scan D
The main advantage of trading using opposite ABC Taiwan and Scan D positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ABC Taiwan position performs unexpectedly, Scan D 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 Scan D will offset losses from the drop in Scan D's long position.| ABC Taiwan vs. Wei Chuan Foods | ABC Taiwan vs. Galaxy Software Services | ABC Taiwan vs. Compal Broadband Networks | ABC Taiwan vs. Chung Lien Transportation |
| Scan D vs. C Media Electronics | Scan D vs. Wha Yu Industrial | Scan D vs. Compal Electronics | Scan D vs. ABC Taiwan Electronics |
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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.
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