Correlation Between ABC Taiwan and CoAsia Microelectronics
Can any of the company-specific risk be diversified away by investing in both ABC Taiwan and CoAsia 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 CoAsia 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 CoAsia Microelectronics, you can compare the effects of market volatilities on ABC Taiwan and CoAsia 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 CoAsia Microelectronics. Check out your portfolio center. Please also check ongoing floating volatility patterns of ABC Taiwan and CoAsia Microelectronics.
Diversification Opportunities for ABC Taiwan and CoAsia Microelectronics
0.52 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between ABC and CoAsia is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding ABC Taiwan Electronics and CoAsia Microelectronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CoAsia 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 CoAsia Microelectronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CoAsia Microelectronics has no effect on the direction of ABC Taiwan i.e., ABC Taiwan and CoAsia Microelectronics go up and down completely randomly.
Pair Corralation between ABC Taiwan and CoAsia Microelectronics
Assuming the 90 days trading horizon ABC Taiwan Electronics is expected to under-perform the CoAsia Microelectronics. But the stock apears to be less risky and, when comparing its historical volatility, ABC Taiwan Electronics is 1.47 times less risky than CoAsia Microelectronics. The stock trades about -0.18 of its potential returns per unit of risk. The CoAsia Microelectronics is currently generating about -0.1 of returns per unit of risk over similar time horizon. If you would invest 3,845 in CoAsia Microelectronics on October 23, 2024 and sell it today you would lose (220.00) from holding CoAsia Microelectronics or give up 5.72% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 95.24% |
| Values | Daily Returns |
ABC Taiwan Electronics vs. CoAsia Microelectronics
Performance |
| Timeline |
| ABC Taiwan Electronics |
| CoAsia Microelectronics |
ABC Taiwan and CoAsia Microelectronics Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with ABC Taiwan and CoAsia Microelectronics
The main advantage of trading using opposite ABC Taiwan and CoAsia Microelectronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ABC Taiwan position performs unexpectedly, CoAsia 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 CoAsia Microelectronics will offset losses from the drop in CoAsia Microelectronics' 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 |
| CoAsia Microelectronics vs. Energenesis Biomedical Co | CoAsia Microelectronics vs. Prime Oil Chemical | CoAsia Microelectronics vs. Jia Jie Biomedical | CoAsia Microelectronics vs. Hsinli Chemical Industrial |
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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.
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