Correlation Between ABC Taiwan and Trade Van

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

Diversification Opportunities for ABC Taiwan and Trade Van

-0.77

Correlation Coefficient

ABC Taiwan  Trade Van

Pay attention - limited upside

The 3 months correlation between ABC and Trade is -0.77. Overlapping area represents the amount of risk that can be diversified away by holding ABC Taiwan Electronics and Trade Van Information Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Trade Van Information 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 Trade Van. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Trade Van Information has no effect on the direction of ABC Taiwan i.e., ABC Taiwan and Trade Van go up and down completely randomly.

Pair Corralation between ABC Taiwan and Trade Van

Assuming the 90 days trading horizon ABC Taiwan Electronics is expected to under-perform the Trade Van. In addition to that, ABC Taiwan is 1.61 times more volatile than Trade Van Information Services. It trades about -0.07 of its total potential returns per unit of risk. Trade Van Information Services is currently generating about 0.22 per unit of volatility. If you would invest  7,910  in Trade Van Information Services on October 25, 2024 and sell it today you would earn a total of  1,350  from holding Trade Van Information Services or generate 17.07% return on investment over 90 days.

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

ABC Taiwan Electronics  vs.  Trade Van Information Services

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 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.

Trade Van Information

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Trade Van Information Services are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Trade Van showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with ABC Taiwan and Trade Van

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

The idea behind ABC Taiwan Electronics and Trade Van Information 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.