Correlation Between New Advanced and Taiwan Speciality

Can any of the company-specific risk be diversified away by investing in both New Advanced and Taiwan Speciality 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 New Advanced and Taiwan Speciality into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between New Advanced Electronics and Taiwan Speciality Chemicals, you can compare the effects of market volatilities on New Advanced and Taiwan Speciality 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 New Advanced with a short position of Taiwan Speciality. Check out your portfolio center. Please also check ongoing floating volatility patterns of New Advanced and Taiwan Speciality.

Diversification Opportunities for New Advanced and Taiwan Speciality

0.54

Correlation Coefficient

New Advanced  Taiwan Speciality

Very weak diversification

The 3 months correlation between New and Taiwan is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding New Advanced Electronics and Taiwan Speciality Chemicals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Taiwan Speciality and New Advanced 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 New Advanced Electronics are associated (or correlated) with Taiwan Speciality. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Taiwan Speciality has no effect on the direction of New Advanced i.e., New Advanced and Taiwan Speciality go up and down completely randomly.

Pair Corralation between New Advanced and Taiwan Speciality

Assuming the 90 days trading horizon New Advanced is expected to generate 1.61 times less return on investment than Taiwan Speciality. But when comparing it to its historical volatility, New Advanced Electronics is 1.34 times less risky than Taiwan Speciality. It trades about 0.22 of its potential returns per unit of risk. Taiwan Speciality Chemicals is currently generating about 0.27 of returns per unit of risk over similar time horizon. If you would invest  16,600  in Taiwan Speciality Chemicals on October 10, 2024 and sell it today you would earn a total of  1,950  from holding Taiwan Speciality Chemicals or generate 11.75% return on investment over 90 days.

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

New Advanced Electronics  vs.  Taiwan Speciality Chemicals

New Advanced Electronics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days New Advanced 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.

Taiwan Speciality

Risk-Adjusted Performance

7 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Taiwan Speciality Chemicals are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Taiwan Speciality may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with New Advanced and Taiwan Speciality

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

The idea behind New Advanced Electronics and Taiwan Speciality Chemicals 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.