Correlation Between Taiwan Speciality and Grand Pacific

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

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

Diversification Opportunities for Taiwan Speciality and Grand Pacific

0.03

Correlation Coefficient

Taiwan Speciality  Grand Pacific

Significant diversification

The 3 months correlation between Taiwan and Grand is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Speciality Chemicals and Grand Pacific Petrochemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Grand Pacific Petroc and Taiwan Speciality 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 Taiwan Speciality Chemicals are associated (or correlated) with Grand Pacific. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Grand Pacific Petroc has no effect on the direction of Taiwan Speciality i.e., Taiwan Speciality and Grand Pacific go up and down completely randomly.

Pair Corralation between Taiwan Speciality and Grand Pacific

Assuming the 90 days trading horizon Taiwan Speciality Chemicals is expected to under-perform the Grand Pacific. In addition to that, Taiwan Speciality is 3.07 times more volatile than Grand Pacific Petrochemical. It trades about -0.02 of its total potential returns per unit of risk. Grand Pacific Petrochemical is currently generating about -0.02 per unit of volatility. If you would invest  2,365  in Grand Pacific Petrochemical on September 14, 2024 and sell it today you would lose (35.00) from holding Grand Pacific Petrochemical or give up 1.48% of portfolio value over 90 days.

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

Taiwan Speciality Chemicals  vs.  Grand Pacific Petrochemical

Taiwan Speciality

Risk-Adjusted Performance

0 of 100

Very 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.

Grand Pacific Petroc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Grand Pacific Petrochemical has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Grand Pacific is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Taiwan Speciality and Grand Pacific

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

The idea behind Taiwan Speciality Chemicals and Grand Pacific Petrochemical 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.