Correlation Between Yulon and Taiwan Glass

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

By analyzing existing cross correlation between Yulon Motor Co and Taiwan Glass Ind, you can compare the effects of market volatilities on Yulon and Taiwan Glass 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 Yulon with a short position of Taiwan Glass. Check out your portfolio center. Please also check ongoing floating volatility patterns of Yulon and Taiwan Glass.

Diversification Opportunities for Yulon and Taiwan Glass

0.57

Correlation Coefficient

Yulon  Taiwan Glass

Very weak diversification

The 3 months correlation between Yulon and Taiwan is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Yulon Motor Co and Taiwan Glass Ind in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Taiwan Glass Ind and Yulon 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 Yulon Motor Co are associated (or correlated) with Taiwan Glass. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Taiwan Glass Ind has no effect on the direction of Yulon i.e., Yulon and Taiwan Glass go up and down completely randomly.

Pair Corralation between Yulon and Taiwan Glass

Assuming the 90 days trading horizon Yulon is expected to generate 1.89 times less return on investment than Taiwan Glass. But when comparing it to its historical volatility, Yulon Motor Co is 1.36 times less risky than Taiwan Glass. It trades about 0.11 of its potential returns per unit of risk. Taiwan Glass Ind is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  1,535  in Taiwan Glass Ind on September 5, 2024 and sell it today you would earn a total of  465.00  from holding Taiwan Glass Ind or generate 30.29% return on investment over 90 days.

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

Yulon Motor Co  vs.  Taiwan Glass Ind

Yulon Motor

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Yulon Motor Co are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Yulon showed solid returns over the last few months and may actually be approaching a breakup point.

Taiwan Glass Ind

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Taiwan Glass Ind are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Taiwan Glass showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Yulon and Taiwan Glass

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

The idea behind Yulon Motor Co and Taiwan Glass Ind 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.