Correlation Between China Ecotek and Taiwan Hon

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

By analyzing existing cross correlation between China Ecotek Corp and Taiwan Hon Chuan, you can compare the effects of market volatilities on China Ecotek and Taiwan Hon 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 China Ecotek with a short position of Taiwan Hon. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Ecotek and Taiwan Hon.

Diversification Opportunities for China Ecotek and Taiwan Hon

-0.08

Correlation Coefficient

China Ecotek  Taiwan Hon

Good diversification

The 3 months correlation between China and Taiwan is -0.08. Overlapping area represents the amount of risk that can be diversified away by holding China Ecotek Corp and Taiwan Hon Chuan in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Taiwan Hon Chuan and China Ecotek 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 China Ecotek Corp are associated (or correlated) with Taiwan Hon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Taiwan Hon Chuan has no effect on the direction of China Ecotek i.e., China Ecotek and Taiwan Hon go up and down completely randomly.

Pair Corralation between China Ecotek and Taiwan Hon

Assuming the 90 days trading horizon China Ecotek Corp is expected to under-perform the Taiwan Hon. But the stock apears to be less risky and, when comparing its historical volatility, China Ecotek Corp is 1.5 times less risky than Taiwan Hon. The stock trades about -0.02 of its potential returns per unit of risk. The Taiwan Hon Chuan is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  14,850  in Taiwan Hon Chuan on December 5, 2024 and sell it today you would earn a total of  1,750  from holding Taiwan Hon Chuan or generate 11.78% return on investment over 90 days.

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

China Ecotek Corp  vs.  Taiwan Hon Chuan

China Ecotek Corp

Risk-Adjusted Performance

Very Weak

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

Taiwan Hon Chuan

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Taiwan Hon Chuan are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Taiwan Hon showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Ecotek and Taiwan Hon

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

The idea behind China Ecotek Corp and Taiwan Hon Chuan 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.