Correlation Between Grand Pacific and Taiwan Speciality

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

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

Diversification Opportunities for Grand Pacific and Taiwan Speciality

-0.46

Correlation Coefficient

Grand Pacific  Taiwan Speciality

Very good diversification

The 3 months correlation between Grand and Taiwan is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding Grand Pacific Petrochemical and Taiwan Speciality Chemicals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Taiwan Speciality and Grand Pacific 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 Grand Pacific Petrochemical 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 Grand Pacific i.e., Grand Pacific and Taiwan Speciality go up and down completely randomly.

Pair Corralation between Grand Pacific and Taiwan Speciality

Assuming the 90 days trading horizon Grand Pacific Petrochemical is expected to under-perform the Taiwan Speciality. But the stock apears to be less risky and, when comparing its historical volatility, Grand Pacific Petrochemical is 3.88 times less risky than Taiwan Speciality. The stock trades about -0.06 of its potential returns per unit of risk. The Taiwan Speciality Chemicals is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  16,600  in Taiwan Speciality Chemicals on December 4, 2024 and sell it today you would earn a total of  9,200  from holding Taiwan Speciality Chemicals or generate 55.42% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.21%
Values	Daily Returns

Grand Pacific Petrochemical  vs.  Taiwan Speciality Chemicals

Grand Pacific Petroc

Risk-Adjusted Performance

Very Weak

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

Taiwan Speciality

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Taiwan Speciality Chemicals are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Taiwan Speciality showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Grand Pacific and Taiwan Speciality

The main advantage of trading using opposite Grand Pacific and Taiwan Speciality positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Grand Pacific 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 Grand Pacific Petrochemical 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.

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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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .