Correlation Between Taichung Commercial and Far Eastern

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

By analyzing existing cross correlation between Taichung Commercial Bank and Far Eastern International, you can compare the effects of market volatilities on Taichung Commercial and Far Eastern 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 Taichung Commercial with a short position of Far Eastern. Check out your portfolio center. Please also check ongoing floating volatility patterns of Taichung Commercial and Far Eastern.

Diversification Opportunities for Taichung Commercial and Far Eastern

0.62

Correlation Coefficient

Taichung Commercial  Far Eastern

Poor diversification

The 3 months correlation between Taichung and Far is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Taichung Commercial Bank and Far Eastern International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Far Eastern International and Taichung Commercial 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 Taichung Commercial Bank are associated (or correlated) with Far Eastern. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Far Eastern International has no effect on the direction of Taichung Commercial i.e., Taichung Commercial and Far Eastern go up and down completely randomly.

Pair Corralation between Taichung Commercial and Far Eastern

Assuming the 90 days trading horizon Taichung Commercial Bank is expected to under-perform the Far Eastern. But the stock apears to be less risky and, when comparing its historical volatility, Taichung Commercial Bank is 1.1 times less risky than Far Eastern. The stock trades about -0.13 of its potential returns per unit of risk. The Far Eastern International is currently generating about -0.09 of returns per unit of risk over similar time horizon. If you would invest  1,355  in Far Eastern International on October 12, 2024 and sell it today you would lose (25.00) from holding Far Eastern International or give up 1.85% of portfolio value over 90 days.

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

Taichung Commercial Bank  vs.  Far Eastern International

Taichung Commercial Bank

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Taichung Commercial Bank are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Taichung Commercial is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Far Eastern International

Risk-Adjusted Performance

1 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Far Eastern International are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Far Eastern 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 Taichung Commercial and Far Eastern

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

The idea behind Taichung Commercial Bank and Far Eastern International 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.