Correlation Between Taiwan Fu and Taiwan Hon
Can any of the company-specific risk be diversified away by investing in both Taiwan Fu 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 Taiwan Fu and Taiwan Hon into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Taiwan Fu Hsing and Taiwan Hon Chuan, you can compare the effects of market volatilities on Taiwan Fu 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 Taiwan Fu with a short position of Taiwan Hon. Check out your portfolio center. Please also check ongoing floating volatility patterns of Taiwan Fu and Taiwan Hon.
Diversification Opportunities for Taiwan Fu and Taiwan Hon
0.32 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Taiwan and Taiwan is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Fu Hsing 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 Taiwan Fu 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 Fu Hsing 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 Taiwan Fu i.e., Taiwan Fu and Taiwan Hon go up and down completely randomly.
Pair Corralation between Taiwan Fu and Taiwan Hon
Assuming the 90 days trading horizon Taiwan Fu is expected to generate 42.52 times less return on investment than Taiwan Hon. But when comparing it to its historical volatility, Taiwan Fu Hsing is 2.53 times less risky than Taiwan Hon. It trades about 0.02 of its potential returns per unit of risk. Taiwan Hon Chuan is currently generating about 0.4 of returns per unit of risk over similar time horizon. If you would invest 14,750 in Taiwan Hon Chuan on November 3, 2024 and sell it today you would earn a total of 1,400 from holding Taiwan Hon Chuan or generate 9.49% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Taiwan Fu Hsing vs. Taiwan Hon Chuan
Performance |
| Timeline |
| Taiwan Fu Hsing |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
| Taiwan Hon Chuan |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Insignificant
Taiwan Fu and Taiwan Hon Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Taiwan Fu and Taiwan Hon
The main advantage of trading using opposite Taiwan Fu and Taiwan Hon positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Taiwan Fu 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.The idea behind Taiwan Fu Hsing and Taiwan Hon Chuan 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.
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