Correlation Between First Steamship and Taiwan Tea

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

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

Diversification Opportunities for First Steamship and Taiwan Tea

0.2

Correlation Coefficient

First Steamship  Taiwan Tea

Modest diversification

The 3 months correlation between First and Taiwan is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding First Steamship Co and Taiwan Tea Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Taiwan Tea Corp and First Steamship 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 First Steamship Co are associated (or correlated) with Taiwan Tea. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Taiwan Tea Corp has no effect on the direction of First Steamship i.e., First Steamship and Taiwan Tea go up and down completely randomly.

Pair Corralation between First Steamship and Taiwan Tea

Assuming the 90 days trading horizon First Steamship Co is expected to under-perform the Taiwan Tea. But the stock apears to be less risky and, when comparing its historical volatility, First Steamship Co is 1.1 times less risky than Taiwan Tea. The stock trades about -0.12 of its potential returns per unit of risk. The Taiwan Tea Corp is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  2,100  in Taiwan Tea Corp on September 4, 2024 and sell it today you would lose (10.00) from holding Taiwan Tea Corp or give up 0.48% of portfolio value over 90 days.

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

First Steamship Co  vs.  Taiwan Tea Corp

First Steamship

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in First Steamship Co are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, First Steamship may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Taiwan Tea Corp

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Taiwan Tea Corp are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Taiwan Tea is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with First Steamship and Taiwan Tea

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

The idea behind First Steamship Co and Taiwan Tea Corp 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.