Correlation Between Taiwan Cement and Lihtai Construction

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

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

Diversification Opportunities for Taiwan Cement and Lihtai Construction

-0.05

Correlation Coefficient

Taiwan Cement  Lihtai Construction

Good diversification

The 3 months correlation between Taiwan and Lihtai is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Cement Corp and Lihtai Construction Enterprise in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lihtai Construction and Taiwan Cement 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 Cement Corp are associated (or correlated) with Lihtai Construction. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lihtai Construction has no effect on the direction of Taiwan Cement i.e., Taiwan Cement and Lihtai Construction go up and down completely randomly.

Pair Corralation between Taiwan Cement and Lihtai Construction

Assuming the 90 days trading horizon Taiwan Cement is expected to generate 13.83 times less return on investment than Lihtai Construction. But when comparing it to its historical volatility, Taiwan Cement Corp is 8.36 times less risky than Lihtai Construction. It trades about 0.04 of its potential returns per unit of risk. Lihtai Construction Enterprise is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  5,313  in Lihtai Construction Enterprise on September 26, 2024 and sell it today you would earn a total of  2,897  from holding Lihtai Construction Enterprise or generate 54.53% return on investment over 90 days.

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

Taiwan Cement Corp  vs.  Lihtai Construction Enterprise

Taiwan Cement Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Taiwan Cement Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Taiwan Cement is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Lihtai Construction

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Lihtai Construction Enterprise are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Lihtai Construction 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 Taiwan Cement and Lihtai Construction

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

The idea behind Taiwan Cement Corp and Lihtai Construction Enterprise 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.