Correlation Between AU Optronics and Taiwan Surface

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

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

Diversification Opportunities for AU Optronics and Taiwan Surface

0.73

Correlation Coefficient

AU Optronics  Taiwan Surface

Poor diversification

The 3 months correlation between 2409 and Taiwan is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding AU Optronics and Taiwan Surface Mounting in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Taiwan Surface Mounting and AU Optronics 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 AU Optronics are associated (or correlated) with Taiwan Surface. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Taiwan Surface Mounting has no effect on the direction of AU Optronics i.e., AU Optronics and Taiwan Surface go up and down completely randomly.

Pair Corralation between AU Optronics and Taiwan Surface

Assuming the 90 days trading horizon AU Optronics is expected to under-perform the Taiwan Surface. But the stock apears to be less risky and, when comparing its historical volatility, AU Optronics is 1.11 times less risky than Taiwan Surface. The stock trades about -0.03 of its potential returns per unit of risk. The Taiwan Surface Mounting is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  10,250  in Taiwan Surface Mounting on September 13, 2024 and sell it today you would earn a total of  250.00  from holding Taiwan Surface Mounting or generate 2.44% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.65%
Values	Daily Returns

AU Optronics  vs.  Taiwan Surface Mounting

AU Optronics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days AU Optronics has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, AU Optronics is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Taiwan Surface Mounting

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Taiwan Surface Mounting has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Taiwan Surface is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with AU Optronics and Taiwan Surface

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

The idea behind AU Optronics and Taiwan Surface Mounting 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 Transaction History module to view history of all your transactions and understand their impact on performance.