Correlation Between Taiwan Speciality and Hsinli Chemical

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

Diversification Opportunities for Taiwan Speciality and Hsinli Chemical

0.39

Correlation Coefficient

Taiwan Speciality  Hsinli Chemical

Weak diversification

The 3 months correlation between Taiwan and Hsinli is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Speciality Chemicals and Hsinli Chemical Industrial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hsinli Chemical Indu 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 Hsinli Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hsinli Chemical Indu has no effect on the direction of Taiwan Speciality i.e., Taiwan Speciality and Hsinli Chemical go up and down completely randomly.

Pair Corralation between Taiwan Speciality and Hsinli Chemical

Assuming the 90 days trading horizon Taiwan Speciality is expected to generate 1.7 times less return on investment than Hsinli Chemical. In addition to that, Taiwan Speciality is 1.14 times more volatile than Hsinli Chemical Industrial. It trades about 0.17 of its total potential returns per unit of risk. Hsinli Chemical Industrial is currently generating about 0.34 per unit of volatility. If you would invest  4,905  in Hsinli Chemical Industrial on December 23, 2024 and sell it today you would earn a total of  4,195  from holding Hsinli Chemical Industrial or generate 85.52% return on investment over 90 days.

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

Taiwan Speciality Chemicals  vs.  Hsinli Chemical Industrial

Taiwan Speciality

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Taiwan Speciality Chemicals are ranked lower than 13 (%) 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.

Hsinli Chemical Indu

Risk-Adjusted Performance

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Hsinli Chemical Industrial are ranked lower than 26 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Hsinli Chemical showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Taiwan Speciality and Hsinli Chemical

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

The idea behind Taiwan Speciality Chemicals and Hsinli Chemical Industrial 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.