Correlation Between Taiwan Speciality and Asia Electronic

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

Diversification Opportunities for Taiwan Speciality and Asia Electronic

0.42

Correlation Coefficient

Taiwan Speciality  Asia Electronic

Very weak diversification

The 3 months correlation between Taiwan and Asia is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Speciality Chemicals and Asia Electronic Material in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Asia Electronic Material 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 Asia Electronic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Asia Electronic Material has no effect on the direction of Taiwan Speciality i.e., Taiwan Speciality and Asia Electronic go up and down completely randomly.

Pair Corralation between Taiwan Speciality and Asia Electronic

Assuming the 90 days trading horizon Taiwan Speciality Chemicals is expected to generate 1.23 times more return on investment than Asia Electronic. However, Taiwan Speciality is 1.23 times more volatile than Asia Electronic Material. It trades about 0.4 of its potential returns per unit of risk. Asia Electronic Material is currently generating about 0.02 per unit of risk. If you would invest  16,450  in Taiwan Speciality Chemicals on October 12, 2024 and sell it today you would earn a total of  2,900  from holding Taiwan Speciality Chemicals or generate 17.63% 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.  Asia Electronic Material

Taiwan Speciality

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Taiwan Speciality Chemicals are ranked lower than 9 (%) 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.

Asia Electronic Material

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Asia Electronic Material 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 Asia Electronic

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

The idea behind Taiwan Speciality Chemicals and Asia Electronic Material 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.