Correlation Between Taiwan Tea and Sincere Navigation

Can any of the company-specific risk be diversified away by investing in both Taiwan Tea and Sincere Navigation 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 Sincere Navigation 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 Sincere Navigation Corp, you can compare the effects of market volatilities on Taiwan Tea and Sincere Navigation 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 Sincere Navigation. Check out your portfolio center. Please also check ongoing floating volatility patterns of Taiwan Tea and Sincere Navigation.

Diversification Opportunities for Taiwan Tea and Sincere Navigation

0.36

Correlation Coefficient

Taiwan Tea  Sincere Navigation

Weak diversification

The 3 months correlation between Taiwan and Sincere is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Tea Corp and Sincere Navigation Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sincere Navigation Corp 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 Sincere Navigation. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sincere Navigation Corp has no effect on the direction of Taiwan Tea i.e., Taiwan Tea and Sincere Navigation go up and down completely randomly.

Pair Corralation between Taiwan Tea and Sincere Navigation

Assuming the 90 days trading horizon Taiwan Tea Corp is expected to generate 0.86 times more return on investment than Sincere Navigation. However, Taiwan Tea Corp is 1.16 times less risky than Sincere Navigation. It trades about 0.05 of its potential returns per unit of risk. Sincere Navigation Corp is currently generating about 0.03 per unit of risk. If you would invest  1,980  in Taiwan Tea Corp on September 4, 2024 and sell it today you would earn a total of  90.00  from holding Taiwan Tea Corp or generate 4.55% return on investment over 90 days.

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

Taiwan Tea Corp  vs.  Sincere Navigation Corp

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.

Sincere Navigation Corp

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Sincere Navigation Corp are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Sincere Navigation 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 Taiwan Tea and Sincere Navigation

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

The idea behind Taiwan Tea Corp and Sincere Navigation 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.