Correlation Between Taiwan Speciality and IBF Financial

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

Diversification Opportunities for Taiwan Speciality and IBF Financial

0.26
  Correlation Coefficient

Modest diversification

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

Pair Corralation between Taiwan Speciality and IBF Financial

Assuming the 90 days trading horizon Taiwan Speciality Chemicals is expected to generate 1.95 times more return on investment than IBF Financial. However, Taiwan Speciality is 1.95 times more volatile than IBF Financial Holdings. It trades about 0.01 of its potential returns per unit of risk. IBF Financial Holdings is currently generating about -0.02 per unit of risk. If you would invest  17,100  in Taiwan Speciality Chemicals on September 26, 2024 and sell it today you would earn a total of  100.00  from holding Taiwan Speciality Chemicals or generate 0.58% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Taiwan Speciality Chemicals  vs.  IBF Financial Holdings

 Performance 
       Timeline  
Taiwan Speciality 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
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 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.
IBF Financial Holdings 

Risk-Adjusted Performance

1 of 100

 
Weak
 
Strong
Weak
Compared to the overall equity markets, risk-adjusted returns on investments in IBF Financial Holdings are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, IBF Financial is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Taiwan Speciality and IBF Financial Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Taiwan Speciality and IBF Financial

The main advantage of trading using opposite Taiwan Speciality and IBF Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Taiwan Speciality position performs unexpectedly, IBF 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 IBF Financial will offset losses from the drop in IBF Financial's long position.
The idea behind Taiwan Speciality Chemicals and IBF Financial Holdings 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 Global Correlations module to find global opportunities by holding instruments from different markets.

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