Correlation Between Taiwan Navigation and TECO Electric

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

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

Diversification Opportunities for Taiwan Navigation and TECO Electric

0.13

Correlation Coefficient

Taiwan Navigation  TECO Electric

Average diversification

The 3 months correlation between Taiwan and TECO is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Navigation Co and TECO Electric Machinery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TECO Electric Machinery and Taiwan Navigation 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 Taiwan Navigation Co are associated (or correlated) with TECO Electric. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TECO Electric Machinery has no effect on the direction of Taiwan Navigation i.e., Taiwan Navigation and TECO Electric go up and down completely randomly.

Pair Corralation between Taiwan Navigation and TECO Electric

Assuming the 90 days trading horizon Taiwan Navigation Co is expected to generate 0.96 times more return on investment than TECO Electric. However, Taiwan Navigation Co is 1.04 times less risky than TECO Electric. It trades about 0.09 of its potential returns per unit of risk. TECO Electric Machinery is currently generating about -0.04 per unit of risk. If you would invest  2,935  in Taiwan Navigation Co on December 29, 2024 and sell it today you would earn a total of  175.00  from holding Taiwan Navigation Co or generate 5.96% return on investment over 90 days.

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

Taiwan Navigation Co  vs.  TECO Electric Machinery

Taiwan Navigation

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Taiwan Navigation Co are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Taiwan Navigation may actually be approaching a critical reversion point that can send shares even higher in April 2025.

TECO Electric Machinery

Risk-Adjusted Performance

Very Weak

Over the last 90 days TECO Electric Machinery has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, TECO Electric 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 Taiwan Navigation and TECO Electric

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

The idea behind Taiwan Navigation Co and TECO Electric Machinery 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.