Correlation Between Advantech and Taiwan Chinsan

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

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

Diversification Opportunities for Advantech and Taiwan Chinsan

0.81

Correlation Coefficient

Advantech  Taiwan Chinsan

Very poor diversification

The 3 months correlation between Advantech and Taiwan is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Advantech Co and Taiwan Chinsan Electronic in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Taiwan Chinsan Electronic 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 Taiwan Chinsan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Taiwan Chinsan Electronic has no effect on the direction of Advantech i.e., Advantech and Taiwan Chinsan go up and down completely randomly.

Pair Corralation between Advantech and Taiwan Chinsan

Assuming the 90 days trading horizon Advantech is expected to generate 5.55 times less return on investment than Taiwan Chinsan. But when comparing it to its historical volatility, Advantech Co is 2.36 times less risky than Taiwan Chinsan. It trades about 0.05 of its potential returns per unit of risk. Taiwan Chinsan Electronic is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  3,500  in Taiwan Chinsan Electronic on September 27, 2024 and sell it today you would earn a total of  850.00  from holding Taiwan Chinsan Electronic or generate 24.29% 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.  Taiwan Chinsan Electronic

Advantech

Risk-Adjusted Performance

3 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Advantech Co are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Advantech is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Taiwan Chinsan Electronic

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Taiwan Chinsan Electronic are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Taiwan Chinsan showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Advantech and Taiwan Chinsan

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

The idea behind Advantech Co and Taiwan Chinsan Electronic 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.