Correlation Between Taiwan Navigation and China Airlines

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

Diversification Opportunities for Taiwan Navigation and China Airlines

-0.61

Correlation Coefficient

Taiwan Navigation  China Airlines

Excellent diversification

The 3 months correlation between Taiwan and China is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Navigation Co and China Airlines in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Airlines 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 China Airlines. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Airlines has no effect on the direction of Taiwan Navigation i.e., Taiwan Navigation and China Airlines go up and down completely randomly.

Pair Corralation between Taiwan Navigation and China Airlines

Assuming the 90 days trading horizon Taiwan Navigation Co is expected to generate 0.83 times more return on investment than China Airlines. However, Taiwan Navigation Co is 1.2 times less risky than China Airlines. It trades about 0.09 of its potential returns per unit of risk. China Airlines is currently generating about -0.14 per unit of risk. If you would invest  2,935  in Taiwan Navigation Co on December 30, 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 Against
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Taiwan Navigation Co  vs.  China Airlines

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.

China Airlines

Risk-Adjusted Performance

Very Weak

Over the last 90 days China Airlines has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in April 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Pair Trading with Taiwan Navigation and China Airlines

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

The idea behind Taiwan Navigation Co and China Airlines 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.