Correlation Between AU Optronics and Taiwan Taomee

Can any of the company-specific risk be diversified away by investing in both AU Optronics and Taiwan Taomee 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 Taomee 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 Taomee Co, you can compare the effects of market volatilities on AU Optronics and Taiwan Taomee 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 Taomee. Check out your portfolio center. Please also check ongoing floating volatility patterns of AU Optronics and Taiwan Taomee.

Diversification Opportunities for AU Optronics and Taiwan Taomee

0.48

Correlation Coefficient

AU Optronics  Taiwan Taomee

Very weak diversification

The 3 months correlation between 2409 and Taiwan is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding AU Optronics and Taiwan Taomee Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Taiwan Taomee 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 Taomee. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Taiwan Taomee has no effect on the direction of AU Optronics i.e., AU Optronics and Taiwan Taomee go up and down completely randomly.

Pair Corralation between AU Optronics and Taiwan Taomee

Assuming the 90 days trading horizon AU Optronics is expected to generate 6.64 times less return on investment than Taiwan Taomee. But when comparing it to its historical volatility, AU Optronics is 1.24 times less risky than Taiwan Taomee. It trades about 0.01 of its potential returns per unit of risk. Taiwan Taomee Co is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  1,060  in Taiwan Taomee Co on December 27, 2024 and sell it today you would earn a total of  75.00  from holding Taiwan Taomee Co or generate 7.08% return on investment over 90 days.

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

AU Optronics  vs.  Taiwan Taomee Co

AU Optronics

Risk-Adjusted Performance

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 Taomee

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Taiwan Taomee Co are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Taiwan Taomee may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with AU Optronics and Taiwan Taomee

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

The idea behind AU Optronics and Taiwan Taomee 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.