Correlation Between Taiwan Tea and Yulon

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

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

Diversification Opportunities for Taiwan Tea and Yulon

0.69

Correlation Coefficient

Taiwan Tea  Yulon

Poor diversification

The 3 months correlation between Taiwan and Yulon is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Tea Corp and Yulon Motor Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Yulon Motor and Taiwan Tea 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 Tea Corp are associated (or correlated) with Yulon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Yulon Motor has no effect on the direction of Taiwan Tea i.e., Taiwan Tea and Yulon go up and down completely randomly.

Pair Corralation between Taiwan Tea and Yulon

Assuming the 90 days trading horizon Taiwan Tea Corp is expected to generate 0.64 times more return on investment than Yulon. However, Taiwan Tea Corp is 1.55 times less risky than Yulon. It trades about -0.06 of its potential returns per unit of risk. Yulon Motor Co is currently generating about -0.1 per unit of risk. If you would invest  2,140  in Taiwan Tea Corp on September 4, 2024 and sell it today you would lose (70.00) from holding Taiwan Tea Corp or give up 3.27% of portfolio value over 90 days.

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

Taiwan Tea Corp  vs.  Yulon Motor Co

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.

Yulon Motor

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Yulon Motor Co are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Yulon may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Taiwan Tea and Yulon

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

The idea behind Taiwan Tea Corp and Yulon Motor Co 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.