Correlation Between Taiwan Navigation and Taiwan Secom

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

Diversification Opportunities for Taiwan Navigation and Taiwan Secom

0.09

Correlation Coefficient

Taiwan Navigation  Taiwan Secom

Significant diversification

The 3 months correlation between Taiwan and Taiwan is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Navigation Co and Taiwan Secom Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Taiwan Secom 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 Taiwan Secom. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Taiwan Secom has no effect on the direction of Taiwan Navigation i.e., Taiwan Navigation and Taiwan Secom go up and down completely randomly.

Pair Corralation between Taiwan Navigation and Taiwan Secom

Assuming the 90 days trading horizon Taiwan Navigation is expected to generate 1.69 times less return on investment than Taiwan Secom. In addition to that, Taiwan Navigation is 1.27 times more volatile than Taiwan Secom Co. It trades about 0.02 of its total potential returns per unit of risk. Taiwan Secom Co is currently generating about 0.05 per unit of volatility. If you would invest  9,920  in Taiwan Secom Co on September 14, 2024 and sell it today you would earn a total of  3,130  from holding Taiwan Secom Co or generate 31.55% 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.  Taiwan Secom Co

Taiwan Navigation

Risk-Adjusted Performance

0 of 100

Very Weak

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

Taiwan Secom

Risk-Adjusted Performance

0 of 100

Very Weak

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

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

The idea behind Taiwan Navigation Co and Taiwan Secom 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.