Correlation Between Taiwan High and PharmaEngine

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

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

Diversification Opportunities for Taiwan High and PharmaEngine

0.13

Correlation Coefficient

Taiwan High  PharmaEngine

Average diversification

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

Pair Corralation between Taiwan High and PharmaEngine

Assuming the 90 days trading horizon Taiwan High Speed is expected to under-perform the PharmaEngine. But the stock apears to be less risky and, when comparing its historical volatility, Taiwan High Speed is 3.24 times less risky than PharmaEngine. The stock trades about -0.04 of its potential returns per unit of risk. The PharmaEngine is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  9,250  in PharmaEngine on December 26, 2024 and sell it today you would earn a total of  1,200  from holding PharmaEngine or generate 12.97% return on investment over 90 days.

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

Taiwan High Speed  vs.  PharmaEngine

Taiwan High Speed

Risk-Adjusted Performance

Very Weak

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

PharmaEngine

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in PharmaEngine are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, PharmaEngine showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Taiwan High and PharmaEngine

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

The idea behind Taiwan High Speed and PharmaEngine 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.