Correlation Between Taiwan Steel and Hua Nan
Can any of the company-specific risk be diversified away by investing in both Taiwan Steel and Hua Nan 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 Steel and Hua Nan into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Taiwan Steel Union and Hua Nan Financial, you can compare the effects of market volatilities on Taiwan Steel and Hua Nan 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 Steel with a short position of Hua Nan. Check out your portfolio center. Please also check ongoing floating volatility patterns of Taiwan Steel and Hua Nan.
Diversification Opportunities for Taiwan Steel and Hua Nan
-0.39 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Taiwan and Hua is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Steel Union and Hua Nan Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hua Nan Financial and Taiwan Steel 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 Steel Union are associated (or correlated) with Hua Nan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hua Nan Financial has no effect on the direction of Taiwan Steel i.e., Taiwan Steel and Hua Nan go up and down completely randomly.
Pair Corralation between Taiwan Steel and Hua Nan
Assuming the 90 days trading horizon Taiwan Steel is expected to generate 1.12 times less return on investment than Hua Nan. In addition to that, Taiwan Steel is 1.23 times more volatile than Hua Nan Financial. It trades about 0.04 of its total potential returns per unit of risk. Hua Nan Financial is currently generating about 0.05 per unit of volatility. If you would invest 2,213 in Hua Nan Financial on November 2, 2024 and sell it today you would earn a total of 587.00 from holding Hua Nan Financial or generate 26.53% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 99.79% |
| Values | Daily Returns |
Taiwan Steel Union vs. Hua Nan Financial
Performance |
| Timeline |
| Taiwan Steel Union |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
| Hua Nan Financial |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Good
Taiwan Steel and Hua Nan Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Taiwan Steel and Hua Nan
The main advantage of trading using opposite Taiwan Steel and Hua Nan positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Taiwan Steel position performs unexpectedly, Hua Nan 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 Hua Nan will offset losses from the drop in Hua Nan's long position.The idea behind Taiwan Steel Union and Hua Nan Financial 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.
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