Correlation Between IBF Financial and Taiwan Steel

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

By analyzing existing cross correlation between IBF Financial Holdings and Taiwan Steel Union, you can compare the effects of market volatilities on IBF Financial and Taiwan Steel 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 IBF Financial with a short position of Taiwan Steel. Check out your portfolio center. Please also check ongoing floating volatility patterns of IBF Financial and Taiwan Steel.

Diversification Opportunities for IBF Financial and Taiwan Steel

-0.15

Correlation Coefficient

IBF Financial  Taiwan Steel

Good diversification

The 3 months correlation between IBF and Taiwan is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding IBF Financial Holdings and Taiwan Steel Union in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Taiwan Steel Union and IBF Financial 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 IBF Financial Holdings are associated (or correlated) with Taiwan Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Taiwan Steel Union has no effect on the direction of IBF Financial i.e., IBF Financial and Taiwan Steel go up and down completely randomly.

Pair Corralation between IBF Financial and Taiwan Steel

Assuming the 90 days trading horizon IBF Financial Holdings is expected to generate 0.9 times more return on investment than Taiwan Steel. However, IBF Financial Holdings is 1.11 times less risky than Taiwan Steel. It trades about 0.02 of its potential returns per unit of risk. Taiwan Steel Union is currently generating about -0.25 per unit of risk. If you would invest  1,480  in IBF Financial Holdings on September 5, 2024 and sell it today you would earn a total of  5.00  from holding IBF Financial Holdings or generate 0.34% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.65%
Values	Daily Returns

IBF Financial Holdings  vs.  Taiwan Steel Union

IBF Financial Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days IBF Financial Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, IBF Financial is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Taiwan Steel Union

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Taiwan Steel Union are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Taiwan Steel may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with IBF Financial and Taiwan Steel

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

The idea behind IBF Financial Holdings and Taiwan Steel Union 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.