Correlation Between AFW and Taeyang Metal

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

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

Diversification Opportunities for AFW and Taeyang Metal

0.17

Correlation Coefficient

AFW  Taeyang Metal

Average diversification

The 3 months correlation between AFW and Taeyang is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding AFW Co and Taeyang Metal Industrial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Taeyang Metal Industrial and AFW 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 AFW Co are associated (or correlated) with Taeyang Metal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Taeyang Metal Industrial has no effect on the direction of AFW i.e., AFW and Taeyang Metal go up and down completely randomly.

Pair Corralation between AFW and Taeyang Metal

Assuming the 90 days trading horizon AFW is expected to generate 2.8 times less return on investment than Taeyang Metal. In addition to that, AFW is 1.11 times more volatile than Taeyang Metal Industrial. It trades about 0.03 of its total potential returns per unit of risk. Taeyang Metal Industrial is currently generating about 0.09 per unit of volatility. If you would invest  414,908  in Taeyang Metal Industrial on November 29, 2024 and sell it today you would earn a total of  100,092  from holding Taeyang Metal Industrial or generate 24.12% return on investment over 90 days.

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

AFW Co  vs.  Taeyang Metal Industrial

AFW Co

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in AFW Co are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, AFW sustained solid returns over the last few months and may actually be approaching a breakup point.

Taeyang Metal Industrial

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Taeyang Metal Industrial are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Taeyang Metal sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with AFW and Taeyang Metal

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

The idea behind AFW Co and Taeyang Metal Industrial 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.