Correlation Between Taiwan Mobile and Far EasTone

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

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

Diversification Opportunities for Taiwan Mobile and Far EasTone

0.85

Correlation Coefficient

Taiwan Mobile  Far EasTone

Very poor diversification

The 3 months correlation between Taiwan and Far is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Mobile Co and Far EasTone Telecommunications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Far EasTone Telecomm and Taiwan Mobile 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 Mobile Co are associated (or correlated) with Far EasTone. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Far EasTone Telecomm has no effect on the direction of Taiwan Mobile i.e., Taiwan Mobile and Far EasTone go up and down completely randomly.

Pair Corralation between Taiwan Mobile and Far EasTone

Assuming the 90 days trading horizon Taiwan Mobile Co is expected to generate 0.97 times more return on investment than Far EasTone. However, Taiwan Mobile Co is 1.03 times less risky than Far EasTone. It trades about -0.03 of its potential returns per unit of risk. Far EasTone Telecommunications is currently generating about -0.03 per unit of risk. If you would invest  11,850  in Taiwan Mobile Co on September 21, 2024 and sell it today you would lose (250.00) from holding Taiwan Mobile Co or give up 2.11% of portfolio value over 90 days.

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

Taiwan Mobile Co  vs.  Far EasTone Telecommunications

Taiwan Mobile

Risk-Adjusted Performance

0 of 100

Very Weak

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

Far EasTone Telecomm

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Far EasTone Telecommunications has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Far EasTone 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 Mobile and Far EasTone

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

The idea behind Taiwan Mobile Co and Far EasTone Telecommunications 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.