Correlation Between Taiwan Tea and TUL

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

Diversification Opportunities for Taiwan Tea and TUL

-0.4

Correlation Coefficient

Taiwan Tea  TUL

Very good diversification

The 3 months correlation between Taiwan and TUL is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Tea Corp and TUL Corp. in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TUL Corporation 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 TUL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TUL Corporation has no effect on the direction of Taiwan Tea i.e., Taiwan Tea and TUL go up and down completely randomly.

Pair Corralation between Taiwan Tea and TUL

Assuming the 90 days trading horizon Taiwan Tea is expected to generate 5.06 times less return on investment than TUL. But when comparing it to its historical volatility, Taiwan Tea Corp is 1.85 times less risky than TUL. It trades about 0.02 of its potential returns per unit of risk. TUL Corporation is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  6,850  in TUL Corporation on September 13, 2024 and sell it today you would earn a total of  520.00  from holding TUL Corporation or generate 7.59% return on investment over 90 days.

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

Taiwan Tea Corp  vs.  TUL Corp.

Taiwan Tea Corp

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Taiwan Tea Corp are ranked lower than 1 (%) 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.

TUL Corporation

Risk-Adjusted Performance

4 of 100

Insignificant

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

Pair Trading with Taiwan Tea and TUL

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

The idea behind Taiwan Tea Corp and TUL Corporation 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.