Correlation Between MediaTek and Taiwan Speciality

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

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

Diversification Opportunities for MediaTek and Taiwan Speciality

0.49

Correlation Coefficient

MediaTek  Taiwan Speciality

Very weak diversification

The 3 months correlation between MediaTek and Taiwan is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding MediaTek and Taiwan Speciality Chemicals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Taiwan Speciality and MediaTek 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 MediaTek are associated (or correlated) with Taiwan Speciality. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Taiwan Speciality has no effect on the direction of MediaTek i.e., MediaTek and Taiwan Speciality go up and down completely randomly.

Pair Corralation between MediaTek and Taiwan Speciality

Assuming the 90 days trading horizon MediaTek is expected to generate 4.29 times less return on investment than Taiwan Speciality. But when comparing it to its historical volatility, MediaTek is 1.19 times less risky than Taiwan Speciality. It trades about 0.07 of its potential returns per unit of risk. Taiwan Speciality Chemicals is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  17,350  in Taiwan Speciality Chemicals on October 20, 2024 and sell it today you would earn a total of  7,200  from holding Taiwan Speciality Chemicals or generate 41.5% return on investment over 90 days.

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

MediaTek  vs.  Taiwan Speciality Chemicals

MediaTek

Risk-Adjusted Performance

5 of 100

Modest

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

Taiwan Speciality

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Taiwan Speciality Chemicals are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Taiwan Speciality showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with MediaTek and Taiwan Speciality

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

The idea behind MediaTek and Taiwan Speciality Chemicals 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.