Correlation Between Advantech and Tigerair Taiwan

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

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

Diversification Opportunities for Advantech and Tigerair Taiwan

0.86

Correlation Coefficient

Advantech  Tigerair Taiwan

Very poor diversification

The 3 months correlation between Advantech and Tigerair is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Advantech Co and Tigerair Taiwan Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tigerair Taiwan and Advantech 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 Advantech Co are associated (or correlated) with Tigerair Taiwan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tigerair Taiwan has no effect on the direction of Advantech i.e., Advantech and Tigerair Taiwan go up and down completely randomly.

Pair Corralation between Advantech and Tigerair Taiwan

Assuming the 90 days trading horizon Advantech is expected to generate 3.89 times less return on investment than Tigerair Taiwan. But when comparing it to its historical volatility, Advantech Co is 2.0 times less risky than Tigerair Taiwan. It trades about 0.12 of its potential returns per unit of risk. Tigerair Taiwan Co is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  5,660  in Tigerair Taiwan Co on October 9, 2024 and sell it today you would earn a total of  2,870  from holding Tigerair Taiwan Co or generate 50.71% return on investment over 90 days.

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

Advantech Co  vs.  Tigerair Taiwan Co

Advantech

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Advantech Co are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Advantech may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Tigerair Taiwan

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Tigerair Taiwan Co are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Tigerair Taiwan showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Advantech and Tigerair Taiwan

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

The idea behind Advantech Co and Tigerair Taiwan 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.

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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.