Correlation Between Taiwan Speciality and Asia Metal

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

Diversification Opportunities for Taiwan Speciality and Asia Metal

-0.33

Correlation Coefficient

Taiwan Speciality  Asia Metal

Very good diversification

The 3 months correlation between Taiwan and Asia is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Speciality Chemicals and Asia Metal Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Asia Metal Industries 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 Metal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Asia Metal Industries has no effect on the direction of Taiwan Speciality i.e., Taiwan Speciality and Asia Metal go up and down completely randomly.

Pair Corralation between Taiwan Speciality and Asia Metal

Assuming the 90 days trading horizon Taiwan Speciality Chemicals is expected to generate 1.55 times more return on investment than Asia Metal. However, Taiwan Speciality is 1.55 times more volatile than Asia Metal Industries. It trades about 0.1 of its potential returns per unit of risk. Asia Metal Industries is currently generating about 0.08 per unit of risk. If you would invest  8,947  in Taiwan Speciality Chemicals on October 9, 2024 and sell it today you would earn a total of  9,153  from holding Taiwan Speciality Chemicals or generate 102.3% return on investment over 90 days.

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

Taiwan Speciality Chemicals  vs.  Asia Metal Industries

Taiwan Speciality

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Taiwan Speciality Chemicals are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. 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.

Asia Metal Industries

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Asia Metal Industries are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Asia Metal may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Taiwan Speciality and Asia Metal

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

The idea behind Taiwan Speciality Chemicals and Asia Metal Industries 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..