Correlation Between Taiwan Speciality and Taishin Financial

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

Diversification Opportunities for Taiwan Speciality and Taishin Financial

0.71

Correlation Coefficient

Taiwan Speciality  Taishin Financial

Poor diversification

The 3 months correlation between Taiwan and Taishin is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Speciality Chemicals and Taishin Financial Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Taishin Financial Holding 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 Taishin Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Taishin Financial Holding has no effect on the direction of Taiwan Speciality i.e., Taiwan Speciality and Taishin Financial go up and down completely randomly.

Pair Corralation between Taiwan Speciality and Taishin Financial

Assuming the 90 days trading horizon Taiwan Speciality Chemicals is expected to generate 14.85 times more return on investment than Taishin Financial. However, Taiwan Speciality is 14.85 times more volatile than Taishin Financial Holding. It trades about 0.6 of its potential returns per unit of risk. Taishin Financial Holding is currently generating about 0.45 per unit of risk. If you would invest  17,200  in Taiwan Speciality Chemicals on October 26, 2024 and sell it today you would earn a total of  9,200  from holding Taiwan Speciality Chemicals or generate 53.49% return on investment over 90 days.

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

Taiwan Speciality Chemicals  vs.  Taishin Financial Holding

Taiwan Speciality

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Taiwan Speciality Chemicals are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Taiwan Speciality showed solid returns over the last few months and may actually be approaching a breakup point.

Taishin Financial Holding

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Taishin Financial Holding are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Taishin Financial is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Taiwan Speciality and Taishin Financial

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

The idea behind Taiwan Speciality Chemicals and Taishin Financial Holding 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.