Correlation Between Hotai and Taiwan Secom

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

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

Diversification Opportunities for Hotai and Taiwan Secom

0.76

Correlation Coefficient

Hotai  Taiwan Secom

Poor diversification

The 3 months correlation between Hotai and Taiwan is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Hotai Motor Co and Taiwan Secom Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Taiwan Secom and Hotai 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 Hotai Motor Co are associated (or correlated) with Taiwan Secom. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Taiwan Secom has no effect on the direction of Hotai i.e., Hotai and Taiwan Secom go up and down completely randomly.

Pair Corralation between Hotai and Taiwan Secom

Assuming the 90 days trading horizon Hotai Motor Co is expected to generate 0.76 times more return on investment than Taiwan Secom. However, Hotai Motor Co is 1.32 times less risky than Taiwan Secom. It trades about -0.09 of its potential returns per unit of risk. Taiwan Secom Co is currently generating about -0.07 per unit of risk. If you would invest  61,000  in Hotai Motor Co on October 23, 2024 and sell it today you would lose (1,100) from holding Hotai Motor Co or give up 1.8% of portfolio value over 90 days.

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

Hotai Motor Co  vs.  Taiwan Secom Co

Hotai Motor

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hotai Motor Co 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 Secom

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Taiwan Secom Co 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 Hotai and Taiwan Secom

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

The idea behind Hotai Motor Co and Taiwan Secom Co 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.