Correlation Between Nan Ya and Taiwan Speciality

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

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

Diversification Opportunities for Nan Ya and Taiwan Speciality

0.63

Correlation Coefficient

Nan Ya  Taiwan Speciality

Poor diversification

The 3 months correlation between Nan and Taiwan is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Nan Ya Plastics and Taiwan Speciality Chemicals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Taiwan Speciality and Nan Ya 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 Nan Ya Plastics are associated (or correlated) with Taiwan Speciality. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Taiwan Speciality has no effect on the direction of Nan Ya i.e., Nan Ya and Taiwan Speciality go up and down completely randomly.

Pair Corralation between Nan Ya and Taiwan Speciality

Assuming the 90 days trading horizon Nan Ya Plastics is expected to under-perform the Taiwan Speciality. But the stock apears to be less risky and, when comparing its historical volatility, Nan Ya Plastics is 1.61 times less risky than Taiwan Speciality. The stock trades about -0.17 of its potential returns per unit of risk. The Taiwan Speciality Chemicals is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  17,300  in Taiwan Speciality Chemicals on September 14, 2024 and sell it today you would lose (1,300) from holding Taiwan Speciality Chemicals or give up 7.51% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.41%
Values	Daily Returns

Nan Ya Plastics  vs.  Taiwan Speciality Chemicals

Nan Ya Plastics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nan Ya Plastics has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in January 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Taiwan Speciality

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Taiwan Speciality Chemicals has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Taiwan Speciality 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 Nan Ya and Taiwan Speciality

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

The idea behind Nan Ya Plastics and Taiwan Speciality Chemicals 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.