Correlation Between King Chou and Taiwan Paiho

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

By analyzing existing cross correlation between King Chou Marine and Taiwan Paiho, you can compare the effects of market volatilities on King Chou and Taiwan Paiho 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 King Chou with a short position of Taiwan Paiho. Check out your portfolio center. Please also check ongoing floating volatility patterns of King Chou and Taiwan Paiho.

Diversification Opportunities for King Chou and Taiwan Paiho

-0.26

Correlation Coefficient

King Chou  Taiwan Paiho

Very good diversification

The 3 months correlation between King and Taiwan is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding King Chou Marine and Taiwan Paiho in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Taiwan Paiho and King Chou 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 King Chou Marine are associated (or correlated) with Taiwan Paiho. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Taiwan Paiho has no effect on the direction of King Chou i.e., King Chou and Taiwan Paiho go up and down completely randomly.

Pair Corralation between King Chou and Taiwan Paiho

Assuming the 90 days trading horizon King Chou is expected to generate 3.27 times less return on investment than Taiwan Paiho. But when comparing it to its historical volatility, King Chou Marine is 2.88 times less risky than Taiwan Paiho. It trades about 0.05 of its potential returns per unit of risk. Taiwan Paiho is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  6,120  in Taiwan Paiho on September 18, 2024 and sell it today you would earn a total of  1,120  from holding Taiwan Paiho or generate 18.3% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.4%
Values	Daily Returns

King Chou Marine  vs.  Taiwan Paiho

King Chou Marine

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in King Chou Marine are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, King Chou is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Taiwan Paiho

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Taiwan Paiho are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Taiwan Paiho may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with King Chou and Taiwan Paiho

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

The idea behind King Chou Marine and Taiwan Paiho 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.