Correlation Between Bank of Kaohsiung and Taiwan Cooperative

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

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

Diversification Opportunities for Bank of Kaohsiung and Taiwan Cooperative

0.83

Correlation Coefficient

Bank of Kaohsiung  Taiwan Cooperative

Very poor diversification

The 3 months correlation between Bank and Taiwan is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Bank of Kaohsiung and Taiwan Cooperative Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Taiwan Cooperative and Bank of Kaohsiung 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 Bank of Kaohsiung are associated (or correlated) with Taiwan Cooperative. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Taiwan Cooperative has no effect on the direction of Bank of Kaohsiung i.e., Bank of Kaohsiung and Taiwan Cooperative go up and down completely randomly.

Pair Corralation between Bank of Kaohsiung and Taiwan Cooperative

Assuming the 90 days trading horizon Bank of Kaohsiung is expected to generate 0.95 times more return on investment than Taiwan Cooperative. However, Bank of Kaohsiung is 1.05 times less risky than Taiwan Cooperative. It trades about -0.08 of its potential returns per unit of risk. Taiwan Cooperative Financial is currently generating about -0.18 per unit of risk. If you would invest  1,180  in Bank of Kaohsiung on October 6, 2024 and sell it today you would lose (35.00) from holding Bank of Kaohsiung or give up 2.97% of portfolio value over 90 days.

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

Bank of Kaohsiung  vs.  Taiwan Cooperative Financial

Bank of Kaohsiung

Risk-Adjusted Performance

0 of 100

Very Weak

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

Taiwan Cooperative

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Taiwan Cooperative Financial 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.

Pair Trading with Bank of Kaohsiung and Taiwan Cooperative

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

The idea behind Bank of Kaohsiung and Taiwan Cooperative Financial 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.