Correlation Between Lan Fa and Taiwan Taffeta

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

By analyzing existing cross correlation between Lan Fa Textile and Taiwan Taffeta Fabric, you can compare the effects of market volatilities on Lan Fa and Taiwan Taffeta 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 Lan Fa with a short position of Taiwan Taffeta. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lan Fa and Taiwan Taffeta.

Diversification Opportunities for Lan Fa and Taiwan Taffeta

0.83

Correlation Coefficient

Lan Fa  Taiwan Taffeta

Very poor diversification

The 3 months correlation between Lan and Taiwan is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Lan Fa Textile and Taiwan Taffeta Fabric in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Taiwan Taffeta Fabric and Lan Fa 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 Lan Fa Textile are associated (or correlated) with Taiwan Taffeta. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Taiwan Taffeta Fabric has no effect on the direction of Lan Fa i.e., Lan Fa and Taiwan Taffeta go up and down completely randomly.

Pair Corralation between Lan Fa and Taiwan Taffeta

Assuming the 90 days trading horizon Lan Fa Textile is expected to generate 0.74 times more return on investment than Taiwan Taffeta. However, Lan Fa Textile is 1.35 times less risky than Taiwan Taffeta. It trades about -0.08 of its potential returns per unit of risk. Taiwan Taffeta Fabric is currently generating about -0.3 per unit of risk. If you would invest  1,010  in Lan Fa Textile on September 15, 2024 and sell it today you would lose (35.00) from holding Lan Fa Textile or give up 3.47% of portfolio value over 90 days.

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

Lan Fa Textile  vs.  Taiwan Taffeta Fabric

Lan Fa Textile

Risk-Adjusted Performance

0 of 100

Very Weak

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

Taiwan Taffeta Fabric

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Taiwan Taffeta Fabric 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 Lan Fa and Taiwan Taffeta

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

The idea behind Lan Fa Textile and Taiwan Taffeta Fabric 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.