Correlation Between Founding Construction and ABC Taiwan

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

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

Diversification Opportunities for Founding Construction and ABC Taiwan

-0.54

Correlation Coefficient

Founding Construction  ABC Taiwan

Excellent diversification

The 3 months correlation between Founding and ABC is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding Founding Construction Developm and ABC Taiwan Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ABC Taiwan Electronics and Founding Construction 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 Founding Construction Development are associated (or correlated) with ABC Taiwan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ABC Taiwan Electronics has no effect on the direction of Founding Construction i.e., Founding Construction and ABC Taiwan go up and down completely randomly.

Pair Corralation between Founding Construction and ABC Taiwan

Assuming the 90 days trading horizon Founding Construction Development is expected to under-perform the ABC Taiwan. But the stock apears to be less risky and, when comparing its historical volatility, Founding Construction Development is 1.05 times less risky than ABC Taiwan. The stock trades about -0.04 of its potential returns per unit of risk. The ABC Taiwan Electronics is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  2,005  in ABC Taiwan Electronics on September 2, 2024 and sell it today you would earn a total of  290.00  from holding ABC Taiwan Electronics or generate 14.46% return on investment over 90 days.

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

Founding Construction Developm  vs.  ABC Taiwan Electronics

Founding Construction

Risk-Adjusted Performance

0 of 100

Very Weak

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

ABC Taiwan Electronics

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in ABC Taiwan Electronics are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, ABC Taiwan showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Founding Construction and ABC Taiwan

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

The idea behind Founding Construction Development and ABC Taiwan Electronics 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.