Correlation Between Everlight Chemical and ABC Taiwan

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

By analyzing existing cross correlation between Everlight Chemical Industrial and ABC Taiwan Electronics, you can compare the effects of market volatilities on Everlight Chemical and ABC Taiwan 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 Everlight Chemical with a short position of ABC Taiwan. Check out your portfolio center. Please also check ongoing floating volatility patterns of Everlight Chemical and ABC Taiwan.

Diversification Opportunities for Everlight Chemical and ABC Taiwan

0.23

Correlation Coefficient

Everlight Chemical  ABC Taiwan

Modest diversification

The 3 months correlation between Everlight and ABC is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Everlight Chemical Industrial and ABC Taiwan Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ABC Taiwan Electronics and Everlight Chemical 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 Everlight Chemical Industrial are associated (or correlated) with ABC Taiwan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ABC Taiwan Electronics has no effect on the direction of Everlight Chemical i.e., Everlight Chemical and ABC Taiwan go up and down completely randomly.

Pair Corralation between Everlight Chemical and ABC Taiwan

Assuming the 90 days trading horizon Everlight Chemical Industrial is expected to under-perform the ABC Taiwan. In addition to that, Everlight Chemical is 1.03 times more volatile than ABC Taiwan Electronics. It trades about -0.29 of its total potential returns per unit of risk. ABC Taiwan Electronics is currently generating about -0.19 per unit of volatility. If you would invest  2,170  in ABC Taiwan Electronics on October 12, 2024 and sell it today you would lose (125.00) from holding ABC Taiwan Electronics or give up 5.76% of portfolio value over 90 days.

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

Everlight Chemical Industrial  vs.  ABC Taiwan Electronics

Everlight Chemical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Everlight Chemical Industrial 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 February 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

ABC Taiwan Electronics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ABC Taiwan Electronics has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, ABC Taiwan 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 Everlight Chemical and ABC Taiwan

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

The idea behind Everlight Chemical Industrial and ABC Taiwan Electronics 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.