Correlation Between Cheng Mei and Taiwan Hon
Can any of the company-specific risk be diversified away by investing in both Cheng Mei and Taiwan Hon 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 Cheng Mei and Taiwan Hon into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Cheng Mei Materials and Taiwan Hon Chuan, you can compare the effects of market volatilities on Cheng Mei and Taiwan Hon 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 Cheng Mei with a short position of Taiwan Hon. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cheng Mei and Taiwan Hon.
Diversification Opportunities for Cheng Mei and Taiwan Hon
0.62 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Cheng and Taiwan is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Cheng Mei Materials and Taiwan Hon Chuan in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Taiwan Hon Chuan and Cheng Mei 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 Cheng Mei Materials are associated (or correlated) with Taiwan Hon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Taiwan Hon Chuan has no effect on the direction of Cheng Mei i.e., Cheng Mei and Taiwan Hon go up and down completely randomly.
Pair Corralation between Cheng Mei and Taiwan Hon
Assuming the 90 days trading horizon Cheng Mei is expected to generate 1.56 times less return on investment than Taiwan Hon. In addition to that, Cheng Mei is 1.48 times more volatile than Taiwan Hon Chuan. It trades about 0.03 of its total potential returns per unit of risk. Taiwan Hon Chuan is currently generating about 0.08 per unit of volatility. If you would invest 8,860 in Taiwan Hon Chuan on September 5, 2024 and sell it today you would earn a total of 5,990 from holding Taiwan Hon Chuan or generate 67.61% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 99.79% |
| Values | Daily Returns |
Cheng Mei Materials vs. Taiwan Hon Chuan
Performance |
| Timeline |
| Cheng Mei Materials |
| Taiwan Hon Chuan |
Cheng Mei and Taiwan Hon Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Cheng Mei and Taiwan Hon
The main advantage of trading using opposite Cheng Mei and Taiwan Hon positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cheng Mei position performs unexpectedly, Taiwan Hon 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 Taiwan Hon will offset losses from the drop in Taiwan Hon's long position.| Cheng Mei vs. Taiwan Semiconductor Manufacturing | Cheng Mei vs. Yang Ming Marine | Cheng Mei vs. AU Optronics | Cheng Mei vs. Nan Ya Plastics |
| Taiwan Hon vs. Insyde Software | Taiwan Hon vs. FarGlory Hotel Co | Taiwan Hon vs. Cheng Mei Materials | Taiwan Hon vs. Nan Ya Plastics |
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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.
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