Correlation Between Newretail and Taichung Commercial

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

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

Diversification Opportunities for Newretail and Taichung Commercial

0.5

Correlation Coefficient

Newretail  Taichung Commercial

Very weak diversification

The 3 months correlation between Newretail and Taichung is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Newretail Co and Taichung Commercial Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Taichung Commercial Bank and Newretail 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 Newretail Co are associated (or correlated) with Taichung Commercial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Taichung Commercial Bank has no effect on the direction of Newretail i.e., Newretail and Taichung Commercial go up and down completely randomly.

Pair Corralation between Newretail and Taichung Commercial

Assuming the 90 days trading horizon Newretail Co is expected to generate 4.2 times more return on investment than Taichung Commercial. However, Newretail is 4.2 times more volatile than Taichung Commercial Bank. It trades about 0.16 of its potential returns per unit of risk. Taichung Commercial Bank is currently generating about 0.35 per unit of risk. If you would invest  2,140  in Newretail Co on September 13, 2024 and sell it today you would earn a total of  310.00  from holding Newretail Co or generate 14.49% return on investment over 90 days.

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

Newretail Co  vs.  Taichung Commercial Bank

Newretail

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Newretail Co are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Newretail showed solid returns over the last few months and may actually be approaching a breakup point.

Taichung Commercial Bank

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Taichung Commercial Bank are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Taichung Commercial may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Newretail and Taichung Commercial

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

The idea behind Newretail Co and Taichung Commercial Bank 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.