Correlation Between ABC Taiwan and An Shin

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

By analyzing existing cross correlation between ABC Taiwan Electronics and An Shin Food Services, you can compare the effects of market volatilities on ABC Taiwan and An Shin 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 ABC Taiwan with a short position of An Shin. Check out your portfolio center. Please also check ongoing floating volatility patterns of ABC Taiwan and An Shin.

Diversification Opportunities for ABC Taiwan and An Shin

0.37

Correlation Coefficient

ABC Taiwan  An Shin

Weak diversification

The 3 months correlation between ABC and 1259 is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding ABC Taiwan Electronics and An Shin Food Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on An Shin Food and ABC Taiwan 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 ABC Taiwan Electronics are associated (or correlated) with An Shin. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of An Shin Food has no effect on the direction of ABC Taiwan i.e., ABC Taiwan and An Shin go up and down completely randomly.

Pair Corralation between ABC Taiwan and An Shin

Assuming the 90 days trading horizon ABC Taiwan Electronics is expected to under-perform the An Shin. In addition to that, ABC Taiwan is 1.51 times more volatile than An Shin Food Services. It trades about -0.11 of its total potential returns per unit of risk. An Shin Food Services is currently generating about -0.02 per unit of volatility. If you would invest  6,430  in An Shin Food Services on December 22, 2024 and sell it today you would lose (80.00) from holding An Shin Food Services or give up 1.24% of portfolio value over 90 days.

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

ABC Taiwan Electronics  vs.  An Shin Food Services

ABC Taiwan Electronics

Risk-Adjusted Performance

Very Weak

Over the last 90 days ABC Taiwan Electronics 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.

An Shin Food

Risk-Adjusted Performance

Very Weak

Over the last 90 days An Shin Food Services has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, An Shin 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 ABC Taiwan and An Shin

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

The idea behind ABC Taiwan Electronics and An Shin Food Services 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.