Correlation Between Taiwan Cement and Shining Building

Can any of the company-specific risk be diversified away by investing in both Taiwan Cement and Shining Building 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 Cement and Shining Building into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Taiwan Cement Corp and Shining Building Business, you can compare the effects of market volatilities on Taiwan Cement and Shining Building 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 Cement with a short position of Shining Building. Check out your portfolio center. Please also check ongoing floating volatility patterns of Taiwan Cement and Shining Building.

Diversification Opportunities for Taiwan Cement and Shining Building

0.66

Correlation Coefficient

Taiwan Cement  Shining Building

Poor diversification

The 3 months correlation between Taiwan and Shining is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Cement Corp and Shining Building Business in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shining Building Business and Taiwan Cement 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 Cement Corp are associated (or correlated) with Shining Building. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shining Building Business has no effect on the direction of Taiwan Cement i.e., Taiwan Cement and Shining Building go up and down completely randomly.

Pair Corralation between Taiwan Cement and Shining Building

Assuming the 90 days trading horizon Taiwan Cement is expected to generate 1.9 times less return on investment than Shining Building. But when comparing it to its historical volatility, Taiwan Cement Corp is 2.36 times less risky than Shining Building. It trades about 0.12 of its potential returns per unit of risk. Shining Building Business is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  985.00  in Shining Building Business on September 4, 2024 and sell it today you would earn a total of  115.00  from holding Shining Building Business or generate 11.68% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Taiwan Cement Corp  vs.  Shining Building Business

Taiwan Cement Corp

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Taiwan Cement Corp are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Taiwan Cement may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Shining Building Business

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Shining Building Business are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Shining Building may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Taiwan Cement and Shining Building

The main advantage of trading using opposite Taiwan Cement and Shining Building positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Taiwan Cement position performs unexpectedly, Shining Building 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 Shining Building will offset losses from the drop in Shining Building's long position.

The idea behind Taiwan Cement Corp and Shining Building Business 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.

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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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.