Correlation Between Taiwan Fertilizer and Oriental Union
Can any of the company-specific risk be diversified away by investing in both Taiwan Fertilizer and Oriental Union 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 Taiwan Fertilizer and Oriental Union into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Taiwan Fertilizer Co and Oriental Union Chemical, you can compare the effects of market volatilities on Taiwan Fertilizer and Oriental Union 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 Taiwan Fertilizer with a short position of Oriental Union. Check out your portfolio center. Please also check ongoing floating volatility patterns of Taiwan Fertilizer and Oriental Union.
Diversification Opportunities for Taiwan Fertilizer and Oriental Union
0.73 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Taiwan and Oriental is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Fertilizer Co and Oriental Union Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Oriental Union Chemical and Taiwan Fertilizer 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 Taiwan Fertilizer Co are associated (or correlated) with Oriental Union. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Oriental Union Chemical has no effect on the direction of Taiwan Fertilizer i.e., Taiwan Fertilizer and Oriental Union go up and down completely randomly.
Pair Corralation between Taiwan Fertilizer and Oriental Union
Assuming the 90 days trading horizon Taiwan Fertilizer Co is expected to under-perform the Oriental Union. But the stock apears to be less risky and, when comparing its historical volatility, Taiwan Fertilizer Co is 2.53 times less risky than Oriental Union. The stock trades about -0.06 of its potential returns per unit of risk. The Oriental Union Chemical is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest 1,560 in Oriental Union Chemical on December 5, 2024 and sell it today you would earn a total of 95.00 from holding Oriental Union Chemical or generate 6.09% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Significant |
Accuracy | 100.0% |
Values | Daily Returns |
Taiwan Fertilizer Co vs. Oriental Union Chemical
Performance |
Timeline |
Taiwan Fertilizer |
Oriental Union Chemical |
Taiwan Fertilizer and Oriental Union Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Taiwan Fertilizer and Oriental Union
The main advantage of trading using opposite Taiwan Fertilizer and Oriental Union positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Taiwan Fertilizer position performs unexpectedly, Oriental Union 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 Oriental Union will offset losses from the drop in Oriental Union's long position.Taiwan Fertilizer vs. Taiwan Cement Corp | Taiwan Fertilizer vs. Far Eastern New | Taiwan Fertilizer vs. Asia Cement Corp | Taiwan Fertilizer vs. Formosa Plastics Corp |
Oriental Union vs. China Man Made Fiber | Oriental Union vs. Taiwan Styrene Monomer | Oriental Union vs. USI Corp | Oriental Union vs. China Petrochemical Development |
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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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