Correlation Between Great Taipei and Huaku Development
Can any of the company-specific risk be diversified away by investing in both Great Taipei and Huaku Development 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 Great Taipei and Huaku Development into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Great Taipei Gas and Huaku Development Co, you can compare the effects of market volatilities on Great Taipei and Huaku Development 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 Great Taipei with a short position of Huaku Development. Check out your portfolio center. Please also check ongoing floating volatility patterns of Great Taipei and Huaku Development.
Diversification Opportunities for Great Taipei and Huaku Development
0.85 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Great and Huaku is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Great Taipei Gas and Huaku Development Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Huaku Development and Great Taipei 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 Great Taipei Gas are associated (or correlated) with Huaku Development. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Huaku Development has no effect on the direction of Great Taipei i.e., Great Taipei and Huaku Development go up and down completely randomly.
Pair Corralation between Great Taipei and Huaku Development
Assuming the 90 days trading horizon Great Taipei Gas is not expected to generate positive returns. However, Great Taipei Gas is 4.86 times less risky than Huaku Development. It waists most of its returns potential to compensate for thr risk taken. Huaku Development is generating about 0.04 per unit of risk. If you would invest 8,760 in Huaku Development Co on September 4, 2024 and sell it today you would earn a total of 3,140 from holding Huaku Development Co or generate 35.84% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 99.79% |
| Values | Daily Returns |
Great Taipei Gas vs. Huaku Development Co
Performance |
| Timeline |
| Great Taipei Gas |
| Huaku Development |
Great Taipei and Huaku Development Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Great Taipei and Huaku Development
The main advantage of trading using opposite Great Taipei and Huaku Development positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Great Taipei position performs unexpectedly, Huaku Development 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 Huaku Development will offset losses from the drop in Huaku Development's long position.| Great Taipei vs. Taiwan Secom Co | Great Taipei vs. Taiwan Shin Kong | Great Taipei vs. Taiwan Cogeneration Corp | Great Taipei vs. Shin Shin Natural |
| Huaku Development vs. Chong Hong Construction | Huaku Development vs. Highwealth Construction Corp | Huaku Development vs. Fubon Financial Holding | Huaku Development vs. CTBC Financial Holding |
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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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