Correlation Between Taiwan Weighted and Powercom

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

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

Diversification Opportunities for Taiwan Weighted and Powercom

-0.46

Correlation Coefficient

Taiwan Weighted  Powercom

Very good diversification

The 3 months correlation between Taiwan and Powercom is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Weighted and Powercom Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Powercom and Taiwan Weighted 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 Weighted are associated (or correlated) with Powercom. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Powercom has no effect on the direction of Taiwan Weighted i.e., Taiwan Weighted and Powercom go up and down completely randomly.

Pair Corralation between Taiwan Weighted and Powercom

Assuming the 90 days trading horizon Taiwan Weighted is expected to generate 12.88 times less return on investment than Powercom. But when comparing it to its historical volatility, Taiwan Weighted is 2.38 times less risky than Powercom. It trades about 0.01 of its potential returns per unit of risk. Powercom Co is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  3,375  in Powercom Co on August 30, 2024 and sell it today you would earn a total of  255.00  from holding Powercom Co or generate 7.56% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	93.65%
Values	Daily Returns

Taiwan Weighted  vs.  Powercom Co

Pair Trading with Taiwan Weighted and Powercom

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

The idea behind Taiwan Weighted and Powercom 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.