Correlation Between ABC Taiwan and Hsinli Chemical

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

Diversification Opportunities for ABC Taiwan and Hsinli Chemical

0.44

Correlation Coefficient

ABC Taiwan  Hsinli Chemical

Very weak diversification

The 3 months correlation between ABC and Hsinli is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding ABC Taiwan Electronics and Hsinli Chemical Industrial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hsinli Chemical Indu 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 Hsinli Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hsinli Chemical Indu has no effect on the direction of ABC Taiwan i.e., ABC Taiwan and Hsinli Chemical go up and down completely randomly.

Pair Corralation between ABC Taiwan and Hsinli Chemical

Assuming the 90 days trading horizon ABC Taiwan Electronics is expected to under-perform the Hsinli Chemical. But the stock apears to be less risky and, when comparing its historical volatility, ABC Taiwan Electronics is 1.79 times less risky than Hsinli Chemical. The stock trades about -0.05 of its potential returns per unit of risk. The Hsinli Chemical Industrial is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  4,895  in Hsinli Chemical Industrial on September 23, 2024 and sell it today you would lose (20.00) from holding Hsinli Chemical Industrial or give up 0.41% of portfolio value over 90 days.

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

ABC Taiwan Electronics  vs.  Hsinli Chemical Industrial

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.

Hsinli Chemical Indu

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Hsinli Chemical Industrial are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Hsinli Chemical 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 Hsinli Chemical

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

The idea behind ABC Taiwan Electronics and Hsinli Chemical 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.

Check out your portfolio center.

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.