Correlation Between ABC Taiwan and RDC Semiconductor

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

Diversification Opportunities for ABC Taiwan and RDC Semiconductor

0.32

Correlation Coefficient

ABC Taiwan  RDC Semiconductor

Weak diversification

The 3 months correlation between ABC and RDC is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding ABC Taiwan Electronics and RDC Semiconductor Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RDC Semiconductor 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 RDC Semiconductor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RDC Semiconductor has no effect on the direction of ABC Taiwan i.e., ABC Taiwan and RDC Semiconductor go up and down completely randomly.

Pair Corralation between ABC Taiwan and RDC Semiconductor

Assuming the 90 days trading horizon ABC Taiwan Electronics is expected to under-perform the RDC Semiconductor. But the stock apears to be less risky and, when comparing its historical volatility, ABC Taiwan Electronics is 2.36 times less risky than RDC Semiconductor. The stock trades about -0.01 of its potential returns per unit of risk. The RDC Semiconductor Co is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  18,041  in RDC Semiconductor Co on October 11, 2024 and sell it today you would earn a total of  2,009  from holding RDC Semiconductor Co or generate 11.14% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.79%
Values	Daily Returns

ABC Taiwan Electronics  vs.  RDC Semiconductor Co

ABC Taiwan Electronics

Risk-Adjusted Performance

0 of 100

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 fairly stable basic indicators, ABC Taiwan is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

RDC Semiconductor

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days RDC Semiconductor Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in February 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Pair Trading with ABC Taiwan and RDC Semiconductor

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

The idea behind ABC Taiwan Electronics and RDC Semiconductor Co 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 Transaction History module to view history of all your transactions and understand their impact on performance.