Correlation Between Hotel Holiday and Taiwan Tea

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

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

Diversification Opportunities for Hotel Holiday and Taiwan Tea

0.45

Correlation Coefficient

Hotel Holiday  Taiwan Tea

Very weak diversification

The 3 months correlation between Hotel and Taiwan is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Hotel Holiday Garden and Taiwan Tea Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Taiwan Tea Corp and Hotel Holiday 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 Hotel Holiday Garden are associated (or correlated) with Taiwan Tea. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Taiwan Tea Corp has no effect on the direction of Hotel Holiday i.e., Hotel Holiday and Taiwan Tea go up and down completely randomly.

Pair Corralation between Hotel Holiday and Taiwan Tea

Assuming the 90 days trading horizon Hotel Holiday Garden is expected to under-perform the Taiwan Tea. But the stock apears to be less risky and, when comparing its historical volatility, Hotel Holiday Garden is 1.44 times less risky than Taiwan Tea. The stock trades about -0.09 of its potential returns per unit of risk. The Taiwan Tea Corp is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  2,250  in Taiwan Tea Corp on September 16, 2024 and sell it today you would lose (180.00) from holding Taiwan Tea Corp or give up 8.0% of portfolio value over 90 days.

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

Hotel Holiday Garden  vs.  Taiwan Tea Corp

Hotel Holiday Garden

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hotel Holiday Garden has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Taiwan Tea Corp

Risk-Adjusted Performance

0 of 100

Very Weak

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

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

The idea behind Hotel Holiday Garden and Taiwan Tea Corp 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.