Correlation Between Advanced Ceramic and Tainan Spinning

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

By analyzing existing cross correlation between Advanced Ceramic X and Tainan Spinning Co, you can compare the effects of market volatilities on Advanced Ceramic and Tainan Spinning 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 Advanced Ceramic with a short position of Tainan Spinning. Check out your portfolio center. Please also check ongoing floating volatility patterns of Advanced Ceramic and Tainan Spinning.

Diversification Opportunities for Advanced Ceramic and Tainan Spinning

0.49

Correlation Coefficient

Advanced Ceramic  Tainan Spinning

Very weak diversification

The 3 months correlation between Advanced and Tainan is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Advanced Ceramic X and Tainan Spinning Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tainan Spinning and Advanced Ceramic 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 Advanced Ceramic X are associated (or correlated) with Tainan Spinning. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tainan Spinning has no effect on the direction of Advanced Ceramic i.e., Advanced Ceramic and Tainan Spinning go up and down completely randomly.

Pair Corralation between Advanced Ceramic and Tainan Spinning

Assuming the 90 days trading horizon Advanced Ceramic X is expected to generate 3.98 times more return on investment than Tainan Spinning. However, Advanced Ceramic is 3.98 times more volatile than Tainan Spinning Co. It trades about 0.16 of its potential returns per unit of risk. Tainan Spinning Co is currently generating about 0.02 per unit of risk. If you would invest  16,200  in Advanced Ceramic X on September 12, 2024 and sell it today you would earn a total of  1,600  from holding Advanced Ceramic X or generate 9.88% return on investment over 90 days.

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

Advanced Ceramic X  vs.  Tainan Spinning Co

Advanced Ceramic X

Risk-Adjusted Performance

5 of 100

Modest

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

Tainan Spinning

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Tainan Spinning Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Tainan Spinning 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 Advanced Ceramic and Tainan Spinning

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

The idea behind Advanced Ceramic X and Tainan Spinning 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.