Correlation Between Chi Sheng and Taiwan Speciality

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

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

Diversification Opportunities for Chi Sheng and Taiwan Speciality

-0.44

Correlation Coefficient

Chi Sheng  Taiwan Speciality

Very good diversification

The 3 months correlation between Chi and Taiwan is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding Chi Sheng Chemical and Taiwan Speciality Chemicals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Taiwan Speciality and Chi Sheng 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 Chi Sheng Chemical 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 Chi Sheng i.e., Chi Sheng and Taiwan Speciality go up and down completely randomly.

Pair Corralation between Chi Sheng and Taiwan Speciality

Assuming the 90 days trading horizon Chi Sheng Chemical is expected to generate 0.25 times more return on investment than Taiwan Speciality. However, Chi Sheng Chemical is 3.93 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 -0.02 per unit of risk. If you would invest  2,605  in Chi Sheng Chemical on September 14, 2024 and sell it today you would earn a total of  255.00  from holding Chi Sheng Chemical or generate 9.79% return on investment over 90 days.

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

Chi Sheng Chemical  vs.  Taiwan Speciality Chemicals

Chi Sheng Chemical

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Chi Sheng Chemical are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Chi Sheng may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Taiwan Speciality

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days Taiwan Speciality Chemicals has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Taiwan Speciality 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 Chi Sheng and Taiwan Speciality

The main advantage of trading using opposite Chi Sheng and Taiwan Speciality positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Chi Sheng 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 Chi Sheng Chemical 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.

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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.