Correlation Between Taiwan Shin and Pou Chen

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

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

Diversification Opportunities for Taiwan Shin and Pou Chen

-0.21

Correlation Coefficient

Taiwan Shin  Pou Chen

Very good diversification

The 3 months correlation between Taiwan and Pou is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Shin Kong and Pou Chen Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pou Chen Corp and Taiwan Shin 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 Shin Kong are associated (or correlated) with Pou Chen. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pou Chen Corp has no effect on the direction of Taiwan Shin i.e., Taiwan Shin and Pou Chen go up and down completely randomly.

Pair Corralation between Taiwan Shin and Pou Chen

Assuming the 90 days trading horizon Taiwan Shin Kong is expected to under-perform the Pou Chen. But the stock apears to be less risky and, when comparing its historical volatility, Taiwan Shin Kong is 3.72 times less risky than Pou Chen. The stock trades about -0.05 of its potential returns per unit of risk. The Pou Chen Corp is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  3,450  in Pou Chen Corp on September 2, 2024 and sell it today you would earn a total of  630.00  from holding Pou Chen Corp or generate 18.26% return on investment over 90 days.

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

Taiwan Shin Kong  vs.  Pou Chen Corp

Taiwan Shin Kong

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pou Chen Corp

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Pou Chen Corp are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Pou Chen showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Taiwan Shin and Pou Chen

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

The idea behind Taiwan Shin Kong and Pou Chen 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.