Correlation Between U Ming and Taiwan Weighted

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

By analyzing existing cross correlation between U Ming Marine Transport and Taiwan Weighted, you can compare the effects of market volatilities on U Ming and Taiwan Weighted 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 U Ming with a short position of Taiwan Weighted. Check out your portfolio center. Please also check ongoing floating volatility patterns of U Ming and Taiwan Weighted.

Diversification Opportunities for U Ming and Taiwan Weighted

0.53

Correlation Coefficient

U Ming  Taiwan Weighted

Very weak diversification

The 3 months correlation between 2606 and Taiwan is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding U Ming Marine Transport and Taiwan Weighted in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Taiwan Weighted and U Ming 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 U Ming Marine Transport are associated (or correlated) with Taiwan Weighted. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Taiwan Weighted has no effect on the direction of U Ming i.e., U Ming and Taiwan Weighted go up and down completely randomly.

Pair Corralation between U Ming and Taiwan Weighted

Assuming the 90 days trading horizon U Ming Marine Transport is expected to generate 1.23 times more return on investment than Taiwan Weighted. However, U Ming is 1.23 times more volatile than Taiwan Weighted. It trades about 0.13 of its potential returns per unit of risk. Taiwan Weighted is currently generating about -0.04 per unit of risk. If you would invest  5,650  in U Ming Marine Transport on September 4, 2024 and sell it today you would earn a total of  200.00  from holding U Ming Marine Transport or generate 3.54% return on investment over 90 days.

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

U Ming Marine Transport  vs.  Taiwan Weighted

Pair Trading with U Ming and Taiwan Weighted

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

The idea behind U Ming Marine Transport and Taiwan Weighted 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.