Correlation Between Tainan Spinning and Cathay Chemical

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

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

Diversification Opportunities for Tainan Spinning and Cathay Chemical

0.84

Correlation Coefficient

Tainan Spinning  Cathay Chemical

Very poor diversification

The 3 months correlation between Tainan and Cathay is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Tainan Spinning Co and Cathay Chemical Works in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cathay Chemical Works and Tainan Spinning 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 Tainan Spinning Co are associated (or correlated) with Cathay Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cathay Chemical Works has no effect on the direction of Tainan Spinning i.e., Tainan Spinning and Cathay Chemical go up and down completely randomly.

Pair Corralation between Tainan Spinning and Cathay Chemical

Assuming the 90 days trading horizon Tainan Spinning Co is expected to generate 0.99 times more return on investment than Cathay Chemical. However, Tainan Spinning Co is 1.01 times less risky than Cathay Chemical. It trades about -0.1 of its potential returns per unit of risk. Cathay Chemical Works is currently generating about -0.22 per unit of risk. If you would invest  1,585  in Tainan Spinning Co on September 16, 2024 and sell it today you would lose (90.00) from holding Tainan Spinning Co or give up 5.68% of portfolio value over 90 days.

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

Tainan Spinning Co  vs.  Cathay Chemical Works

Tainan Spinning

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Tainan Spinning Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Tainan Spinning is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Cathay Chemical Works

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Cathay Chemical Works 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 Tainan Spinning and Cathay Chemical

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

The idea behind Tainan Spinning Co and Cathay Chemical Works 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.