Correlation Between ABC Taiwan and Elan Microelectronics

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

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

Diversification Opportunities for ABC Taiwan and Elan Microelectronics

0.36

Correlation Coefficient

ABC Taiwan  Elan Microelectronics

Weak diversification

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

Pair Corralation between ABC Taiwan and Elan Microelectronics

Assuming the 90 days trading horizon ABC Taiwan Electronics is expected to under-perform the Elan Microelectronics. But the stock apears to be less risky and, when comparing its historical volatility, ABC Taiwan Electronics is 1.09 times less risky than Elan Microelectronics. The stock trades about -0.01 of its potential returns per unit of risk. The Elan Microelectronics Corp is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  14,539  in Elan Microelectronics Corp on September 21, 2024 and sell it today you would earn a total of  161.00  from holding Elan Microelectronics Corp or generate 1.11% return on investment over 90 days.

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

ABC Taiwan Electronics  vs.  Elan Microelectronics Corp

ABC Taiwan Electronics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ABC Taiwan Electronics has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, ABC Taiwan is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Elan Microelectronics

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Elan Microelectronics Corp are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Elan Microelectronics 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 ABC Taiwan and Elan Microelectronics

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

The idea behind ABC Taiwan Electronics and Elan Microelectronics 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.