Correlation Between Taiwan Speciality and New Advanced

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

Diversification Opportunities for Taiwan Speciality and New Advanced

0.54

Correlation Coefficient

Taiwan Speciality  New Advanced

Very weak diversification

The 3 months correlation between Taiwan and New is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Speciality Chemicals and New Advanced Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on New Advanced Electronics 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 New Advanced. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of New Advanced Electronics has no effect on the direction of Taiwan Speciality i.e., Taiwan Speciality and New Advanced go up and down completely randomly.

Pair Corralation between Taiwan Speciality and New Advanced

Assuming the 90 days trading horizon Taiwan Speciality Chemicals is expected to generate 1.34 times more return on investment than New Advanced. However, Taiwan Speciality is 1.34 times more volatile than New Advanced Electronics. It trades about 0.27 of its potential returns per unit of risk. New Advanced Electronics is currently generating about 0.22 per unit of risk. If you would invest  16,600  in Taiwan Speciality Chemicals on October 10, 2024 and sell it today you would earn a total of  1,950  from holding Taiwan Speciality Chemicals or generate 11.75% return on investment over 90 days.

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

Taiwan Speciality Chemicals  vs.  New Advanced Electronics

Taiwan Speciality

Risk-Adjusted Performance

7 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Taiwan Speciality Chemicals are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Taiwan Speciality may actually be approaching a critical reversion point that can send shares even higher in February 2025.

New Advanced Electronics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days New Advanced Electronics 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.

Pair Trading with Taiwan Speciality and New Advanced

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

The idea behind Taiwan Speciality Chemicals and New Advanced Electronics 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.