Correlation Between Taiwan Shin and Taiwan Hon

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

Diversification Opportunities for Taiwan Shin and Taiwan Hon

0.36

Correlation Coefficient

Taiwan Shin  Taiwan Hon

Weak diversification

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

Pair Corralation between Taiwan Shin and Taiwan Hon

Assuming the 90 days trading horizon Taiwan Shin Kong is expected to generate 0.28 times more return on investment than Taiwan Hon. However, Taiwan Shin Kong is 3.63 times less risky than Taiwan Hon. It trades about -0.05 of its potential returns per unit of risk. Taiwan Hon Chuan is currently generating about -0.1 per unit of risk. If you would invest  4,160  in Taiwan Shin Kong on September 2, 2024 and sell it today you would lose (55.00) from holding Taiwan Shin Kong or give up 1.32% of portfolio value over 90 days.

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

Taiwan Shin Kong  vs.  Taiwan Hon Chuan

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.

Taiwan Hon Chuan

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Taiwan Hon Chuan 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 Shin and Taiwan Hon

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

The idea behind Taiwan Shin Kong and Taiwan Hon Chuan 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.