Correlation Between ABC Taiwan and ANJI Technology

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

Diversification Opportunities for ABC Taiwan and ANJI Technology

-0.56

Correlation Coefficient

ABC Taiwan  ANJI Technology

Excellent diversification

The 3 months correlation between ABC and ANJI is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding ABC Taiwan Electronics and ANJI Technology Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ANJI Technology 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 ANJI Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ANJI Technology has no effect on the direction of ABC Taiwan i.e., ABC Taiwan and ANJI Technology go up and down completely randomly.

Pair Corralation between ABC Taiwan and ANJI Technology

Assuming the 90 days trading horizon ABC Taiwan Electronics is expected to generate 0.8 times more return on investment than ANJI Technology. However, ABC Taiwan Electronics is 1.25 times less risky than ANJI Technology. It trades about 0.02 of its potential returns per unit of risk. ANJI Technology Co is currently generating about -0.14 per unit of risk. If you would invest  2,030  in ABC Taiwan Electronics on September 18, 2024 and sell it today you would earn a total of  20.00  from holding ABC Taiwan Electronics or generate 0.99% return on investment over 90 days.

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

ABC Taiwan Electronics  vs.  ANJI Technology Co

ABC Taiwan Electronics

Risk-Adjusted Performance

1 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in ABC Taiwan Electronics are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. 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.

ANJI Technology

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ANJI Technology 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 January 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 ANJI Technology

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

The idea behind ABC Taiwan Electronics and ANJI Technology 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.

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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.