Correlation Between Tong Tai and Roundtop Machinery
Can any of the company-specific risk be diversified away by investing in both Tong Tai and Roundtop Machinery 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 Tong Tai and Roundtop Machinery into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Tong Tai Machine Tool and Roundtop Machinery Industries, you can compare the effects of market volatilities on Tong Tai and Roundtop Machinery 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 Tong Tai with a short position of Roundtop Machinery. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tong Tai and Roundtop Machinery.
Diversification Opportunities for Tong Tai and Roundtop Machinery
0.72 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Tong and Roundtop is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Tong Tai Machine Tool and Roundtop Machinery Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Roundtop Machinery and Tong Tai 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 Tong Tai Machine Tool are associated (or correlated) with Roundtop Machinery. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Roundtop Machinery has no effect on the direction of Tong Tai i.e., Tong Tai and Roundtop Machinery go up and down completely randomly.
Pair Corralation between Tong Tai and Roundtop Machinery
Assuming the 90 days trading horizon Tong Tai is expected to generate 1.04 times less return on investment than Roundtop Machinery. In addition to that, Tong Tai is 1.17 times more volatile than Roundtop Machinery Industries. It trades about 0.08 of its total potential returns per unit of risk. Roundtop Machinery Industries is currently generating about 0.09 per unit of volatility. If you would invest 1,503 in Roundtop Machinery Industries on September 3, 2024 and sell it today you would earn a total of 2,372 from holding Roundtop Machinery Industries or generate 157.82% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 99.78% |
| Values | Daily Returns |
Tong Tai Machine Tool vs. Roundtop Machinery Industries
Performance |
| Timeline |
| Tong Tai Machine |
| Roundtop Machinery |
Tong Tai and Roundtop Machinery Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Tong Tai and Roundtop Machinery
The main advantage of trading using opposite Tong Tai and Roundtop Machinery positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tong Tai position performs unexpectedly, Roundtop Machinery 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 Roundtop Machinery will offset losses from the drop in Roundtop Machinery's long position.| Tong Tai vs. Universal Microelectronics Co | Tong Tai vs. AVerMedia Technologies | Tong Tai vs. Symtek Automation Asia | Tong Tai vs. WiseChip Semiconductor |
| Roundtop Machinery vs. Universal Microelectronics Co | Roundtop Machinery vs. AVerMedia Technologies | Roundtop Machinery vs. Symtek Automation Asia | Roundtop Machinery 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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