Correlation Between Tainan Spinning and Hsin Kuang

Can any of the company-specific risk be diversified away by investing in both Tainan Spinning and Hsin Kuang 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 Hsin Kuang 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 Hsin Kuang Steel, you can compare the effects of market volatilities on Tainan Spinning and Hsin Kuang 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 Hsin Kuang. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tainan Spinning and Hsin Kuang.

Diversification Opportunities for Tainan Spinning and Hsin Kuang

0.79

Correlation Coefficient

Tainan Spinning  Hsin Kuang

Poor diversification

The 3 months correlation between Tainan and Hsin is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Tainan Spinning Co and Hsin Kuang Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hsin Kuang Steel 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 Hsin Kuang. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hsin Kuang Steel has no effect on the direction of Tainan Spinning i.e., Tainan Spinning and Hsin Kuang go up and down completely randomly.

Pair Corralation between Tainan Spinning and Hsin Kuang

Assuming the 90 days trading horizon Tainan Spinning Co is expected to generate 0.63 times more return on investment than Hsin Kuang. However, Tainan Spinning Co is 1.6 times less risky than Hsin Kuang. It trades about -0.05 of its potential returns per unit of risk. Hsin Kuang Steel is currently generating about -0.14 per unit of risk. If you would invest  1,555  in Tainan Spinning Co on September 12, 2024 and sell it today you would lose (45.00) from holding Tainan Spinning Co or give up 2.89% of portfolio value over 90 days.

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

Tainan Spinning Co  vs.  Hsin Kuang Steel

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.

Hsin Kuang Steel

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hsin Kuang Steel 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.

Pair Trading with Tainan Spinning and Hsin Kuang

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

The idea behind Tainan Spinning Co and Hsin Kuang Steel 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.