Correlation Between Tai Tung and Tung Thih
Can any of the company-specific risk be diversified away by investing in both Tai Tung and Tung Thih 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 Tai Tung and Tung Thih into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Tai Tung Communication and Tung Thih Electronic, you can compare the effects of market volatilities on Tai Tung and Tung Thih 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 Tai Tung with a short position of Tung Thih. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tai Tung and Tung Thih.
Diversification Opportunities for Tai Tung and Tung Thih
Very poor diversification
The 3 months correlation between Tai and Tung is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Tai Tung Communication and Tung Thih Electronic in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tung Thih Electronic and Tai Tung 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 Tai Tung Communication are associated (or correlated) with Tung Thih. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tung Thih Electronic has no effect on the direction of Tai Tung i.e., Tai Tung and Tung Thih go up and down completely randomly.
Pair Corralation between Tai Tung and Tung Thih
Assuming the 90 days trading horizon Tai Tung is expected to generate 26.71 times less return on investment than Tung Thih. But when comparing it to its historical volatility, Tai Tung Communication is 22.01 times less risky than Tung Thih. It trades about 0.05 of its potential returns per unit of risk. Tung Thih Electronic is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest 13,181 in Tung Thih Electronic on November 5, 2024 and sell it today you would lose (4,711) from holding Tung Thih Electronic or give up 35.74% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Tai Tung Communication vs. Tung Thih Electronic
Performance |
| Timeline |
| Tai Tung Communication |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
| Tung Thih Electronic |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
Tai Tung and Tung Thih Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Tai Tung and Tung Thih
The main advantage of trading using opposite Tai Tung and Tung Thih positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tai Tung position performs unexpectedly, Tung Thih 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 Tung Thih will offset losses from the drop in Tung Thih's long position.The idea behind Tai Tung Communication and Tung Thih Electronic 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.
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