Correlation Between Shiny Chemical and Taiwan Fu

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

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

Diversification Opportunities for Shiny Chemical and Taiwan Fu

0.71

Correlation Coefficient

Shiny Chemical  Taiwan Fu

Poor diversification

The 3 months correlation between Shiny and Taiwan is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Shiny Chemical Industrial and Taiwan Fu Hsing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Taiwan Fu Hsing and Shiny 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 Shiny Chemical Industrial are associated (or correlated) with Taiwan Fu. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Taiwan Fu Hsing has no effect on the direction of Shiny Chemical i.e., Shiny Chemical and Taiwan Fu go up and down completely randomly.

Pair Corralation between Shiny Chemical and Taiwan Fu

Assuming the 90 days trading horizon Shiny Chemical Industrial is expected to generate 1.38 times more return on investment than Taiwan Fu. However, Shiny Chemical is 1.38 times more volatile than Taiwan Fu Hsing. It trades about 0.04 of its potential returns per unit of risk. Taiwan Fu Hsing is currently generating about 0.04 per unit of risk. If you would invest  11,850  in Shiny Chemical Industrial on October 4, 2024 and sell it today you would earn a total of  3,550  from holding Shiny Chemical Industrial or generate 29.96% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.79%
Values	Daily Returns

Shiny Chemical Industrial  vs.  Taiwan Fu Hsing

Shiny Chemical Industrial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Shiny Chemical Industrial 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 Fu Hsing

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Taiwan Fu Hsing 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.

Pair Trading with Shiny Chemical and Taiwan Fu

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

The idea behind Shiny Chemical Industrial and Taiwan Fu Hsing 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.