Correlation Between Taiwan Tea and Holiday Entertainment

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

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

Diversification Opportunities for Taiwan Tea and Holiday Entertainment

0.68

Correlation Coefficient

Taiwan Tea  Holiday Entertainment

Poor diversification

The 3 months correlation between Taiwan and Holiday is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Tea Corp and Holiday Entertainment Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Holiday Entertainment and Taiwan Tea 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 Tea Corp are associated (or correlated) with Holiday Entertainment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Holiday Entertainment has no effect on the direction of Taiwan Tea i.e., Taiwan Tea and Holiday Entertainment go up and down completely randomly.

Pair Corralation between Taiwan Tea and Holiday Entertainment

Assuming the 90 days trading horizon Taiwan Tea Corp is expected to generate 3.39 times more return on investment than Holiday Entertainment. However, Taiwan Tea is 3.39 times more volatile than Holiday Entertainment Co. It trades about 0.06 of its potential returns per unit of risk. Holiday Entertainment Co is currently generating about -0.06 per unit of risk. If you would invest  1,975  in Taiwan Tea Corp on September 5, 2024 and sell it today you would earn a total of  115.00  from holding Taiwan Tea Corp or generate 5.82% return on investment over 90 days.

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

Taiwan Tea Corp  vs.  Holiday Entertainment Co

Taiwan Tea Corp

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Taiwan Tea Corp are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Taiwan Tea may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Holiday Entertainment

Risk-Adjusted Performance

0 of 100

Very Weak

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

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

The idea behind Taiwan Tea Corp and Holiday Entertainment Co 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.