Correlation Between Taiwan Speciality and C Media

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

Diversification Opportunities for Taiwan Speciality and C Media

0.62

Correlation Coefficient

Taiwan Speciality  C Media

Poor diversification

The 3 months correlation between Taiwan and 6237 is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Speciality Chemicals and C Media Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on C Media 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 C Media. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of C Media Electronics has no effect on the direction of Taiwan Speciality i.e., Taiwan Speciality and C Media go up and down completely randomly.

Pair Corralation between Taiwan Speciality and C Media

Assuming the 90 days trading horizon Taiwan Speciality is expected to generate 1.28 times less return on investment than C Media. But when comparing it to its historical volatility, Taiwan Speciality Chemicals is 1.19 times less risky than C Media. It trades about 0.17 of its potential returns per unit of risk. C Media Electronics is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  4,840  in C Media Electronics on September 28, 2024 and sell it today you would earn a total of  460.00  from holding C Media Electronics or generate 9.5% 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.  C Media Electronics

Taiwan Speciality

Risk-Adjusted Performance

0 of 100

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.

C Media Electronics

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days C Media Electronics has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, C Media is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Taiwan Speciality and C Media

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

The idea behind Taiwan Speciality Chemicals and C Media 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.

Check out your portfolio center.

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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.