Correlation Between Taiwan Speciality and CKM Building
Can any of the company-specific risk be diversified away by investing in both Taiwan Speciality and CKM Building 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 Taiwan Speciality and CKM Building into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Taiwan Speciality Chemicals and CKM Building Material, you can compare the effects of market volatilities on Taiwan Speciality and CKM Building 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 Taiwan Speciality with a short position of CKM Building. Check out your portfolio center. Please also check ongoing floating volatility patterns of Taiwan Speciality and CKM Building.
Diversification Opportunities for Taiwan Speciality and CKM Building
0.6 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Taiwan and CKM is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Speciality Chemicals and CKM Building Material in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CKM Building Material and Taiwan Speciality 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 Taiwan Speciality Chemicals are associated (or correlated) with CKM Building. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CKM Building Material has no effect on the direction of Taiwan Speciality i.e., Taiwan Speciality and CKM Building go up and down completely randomly.
Pair Corralation between Taiwan Speciality and CKM Building
Assuming the 90 days trading horizon Taiwan Speciality Chemicals is expected to generate 3.09 times more return on investment than CKM Building. However, Taiwan Speciality is 3.09 times more volatile than CKM Building Material. It trades about 0.49 of its potential returns per unit of risk. CKM Building Material is currently generating about 0.12 per unit of risk. If you would invest 18,100 in Taiwan Speciality Chemicals on November 7, 2024 and sell it today you would earn a total of 7,000 from holding Taiwan Speciality Chemicals or generate 38.67% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Taiwan Speciality Chemicals vs. CKM Building Material
Performance |
| Timeline |
| Taiwan Speciality |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Solid
| CKM Building Material |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Modest
Taiwan Speciality and CKM Building Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Taiwan Speciality and CKM Building
The main advantage of trading using opposite Taiwan Speciality and CKM Building positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Taiwan Speciality position performs unexpectedly, CKM Building 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 CKM Building will offset losses from the drop in CKM Building's long position.The idea behind Taiwan Speciality Chemicals and CKM Building Material pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.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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