Correlation Between China Electric and Taiwan Sanyo

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

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

Diversification Opportunities for China Electric and Taiwan Sanyo

0.58

Correlation Coefficient

China Electric  Taiwan Sanyo

Very weak diversification

The 3 months correlation between China and Taiwan is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding China Electric Manufacturing and Taiwan Sanyo Electric in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Taiwan Sanyo Electric and China Electric 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 Electric Manufacturing are associated (or correlated) with Taiwan Sanyo. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Taiwan Sanyo Electric has no effect on the direction of China Electric i.e., China Electric and Taiwan Sanyo go up and down completely randomly.

Pair Corralation between China Electric and Taiwan Sanyo

Assuming the 90 days trading horizon China Electric Manufacturing is expected to under-perform the Taiwan Sanyo. In addition to that, China Electric is 3.46 times more volatile than Taiwan Sanyo Electric. It trades about -0.09 of its total potential returns per unit of risk. Taiwan Sanyo Electric is currently generating about -0.13 per unit of volatility. If you would invest  4,050  in Taiwan Sanyo Electric on October 20, 2024 and sell it today you would lose (185.00) from holding Taiwan Sanyo Electric or give up 4.57% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.46%
Values	Daily Returns

China Electric Manufacturing  vs.  Taiwan Sanyo Electric

China Electric Manuf

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China Electric Manufacturing 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.

Taiwan Sanyo Electric

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with China Electric and Taiwan Sanyo

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

The idea behind China Electric Manufacturing and Taiwan Sanyo Electric 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.