Correlation Between Taiwan Tea and Lumax International

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

Diversification Opportunities for Taiwan Tea and Lumax International

0.72

Correlation Coefficient

Taiwan Tea  Lumax International

Poor diversification

The 3 months correlation between Taiwan and Lumax is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Tea Corp and Lumax International Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lumax International 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 Lumax International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lumax International Corp has no effect on the direction of Taiwan Tea i.e., Taiwan Tea and Lumax International go up and down completely randomly.

Pair Corralation between Taiwan Tea and Lumax International

Assuming the 90 days trading horizon Taiwan Tea Corp is expected to under-perform the Lumax International. But the stock apears to be less risky and, when comparing its historical volatility, Taiwan Tea Corp is 1.18 times less risky than Lumax International. The stock trades about -0.09 of its potential returns per unit of risk. The Lumax International Corp is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  11,100  in Lumax International Corp on September 23, 2024 and sell it today you would lose (250.00) from holding Lumax International Corp or give up 2.25% 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.  Lumax International Corp

Taiwan Tea Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Taiwan Tea Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Lumax International Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lumax International Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Pair Trading with Taiwan Tea and Lumax International

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

The idea behind Taiwan Tea Corp and Lumax International 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.