Correlation Between Taiwan Speciality and TMP Steel

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

Diversification Opportunities for Taiwan Speciality and TMP Steel

0.63

Correlation Coefficient

Taiwan Speciality  TMP Steel

Poor diversification

The 3 months correlation between Taiwan and TMP is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Speciality Chemicals and TMP Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TMP Steel 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 TMP Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TMP Steel has no effect on the direction of Taiwan Speciality i.e., Taiwan Speciality and TMP Steel go up and down completely randomly.

Pair Corralation between Taiwan Speciality and TMP Steel

Assuming the 90 days trading horizon Taiwan Speciality Chemicals is expected to generate 2.4 times more return on investment than TMP Steel. However, Taiwan Speciality is 2.4 times more volatile than TMP Steel. It trades about -0.02 of its potential returns per unit of risk. TMP Steel is currently generating about -0.19 per unit of risk. If you would invest  17,300  in Taiwan Speciality Chemicals on September 14, 2024 and sell it today you would lose (1,000.00) from holding Taiwan Speciality Chemicals or give up 5.78% of portfolio value over 90 days.

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

Taiwan Speciality Chemicals  vs.  TMP Steel

Taiwan Speciality

Risk-Adjusted Performance

0 of 100

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 fairly stable basic indicators, Taiwan Speciality is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

TMP Steel

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days TMP Steel has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in January 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Pair Trading with Taiwan Speciality and TMP Steel

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

The idea behind Taiwan Speciality Chemicals and TMP Steel 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.