Correlation Between ABC Taiwan and Carnival Industrial

Can any of the company-specific risk be diversified away by investing in both ABC Taiwan and Carnival Industrial 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 Carnival Industrial 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 Carnival Industrial Corp, you can compare the effects of market volatilities on ABC Taiwan and Carnival Industrial 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 Carnival Industrial. Check out your portfolio center. Please also check ongoing floating volatility patterns of ABC Taiwan and Carnival Industrial.

Diversification Opportunities for ABC Taiwan and Carnival Industrial

0.33

Correlation Coefficient

ABC Taiwan  Carnival Industrial

Weak diversification

The 3 months correlation between ABC and Carnival is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding ABC Taiwan Electronics and Carnival Industrial Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Carnival Industrial Corp 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 Carnival Industrial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Carnival Industrial Corp has no effect on the direction of ABC Taiwan i.e., ABC Taiwan and Carnival Industrial go up and down completely randomly.

Pair Corralation between ABC Taiwan and Carnival Industrial

Assuming the 90 days trading horizon ABC Taiwan Electronics is expected to under-perform the Carnival Industrial. But the stock apears to be less risky and, when comparing its historical volatility, ABC Taiwan Electronics is 1.1 times less risky than Carnival Industrial. The stock trades about -0.12 of its potential returns per unit of risk. The Carnival Industrial Corp is currently generating about -0.08 of returns per unit of risk over similar time horizon. If you would invest  982.00  in Carnival Industrial Corp on December 30, 2024 and sell it today you would lose (61.00) from holding Carnival Industrial Corp or give up 6.21% 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.  Carnival Industrial Corp

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.

Carnival Industrial Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Carnival Industrial Corp 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.

Pair Trading with ABC Taiwan and Carnival Industrial

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

The idea behind ABC Taiwan Electronics and Carnival Industrial Corp 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.