Correlation Between Taichung Commercial and TWOWAY Communications

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

Diversification Opportunities for Taichung Commercial and TWOWAY Communications

-0.46

Correlation Coefficient

Taichung Commercial  TWOWAY Communications

Very good diversification

The 3 months correlation between Taichung and TWOWAY is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding Taichung Commercial Bank and TWOWAY Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TWOWAY Communications 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 TWOWAY Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TWOWAY Communications has no effect on the direction of Taichung Commercial i.e., Taichung Commercial and TWOWAY Communications go up and down completely randomly.

Pair Corralation between Taichung Commercial and TWOWAY Communications

Assuming the 90 days trading horizon Taichung Commercial is expected to generate 1.82 times less return on investment than TWOWAY Communications. But when comparing it to its historical volatility, Taichung Commercial Bank is 4.98 times less risky than TWOWAY Communications. It trades about 0.08 of its potential returns per unit of risk. TWOWAY Communications is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  11,550  in TWOWAY Communications on October 23, 2024 and sell it today you would earn a total of  300.00  from holding TWOWAY Communications or generate 2.6% return on investment over 90 days.

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

Taichung Commercial Bank  vs.  TWOWAY Communications

Taichung Commercial Bank

Risk-Adjusted Performance

6 of 100

Modest

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.

TWOWAY Communications

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in TWOWAY Communications are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, TWOWAY Communications may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Taichung Commercial and TWOWAY Communications

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

The idea behind Taichung Commercial Bank and TWOWAY Communications 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.