Correlation Between Far EasTone and Taiwan Mobile

Can any of the company-specific risk be diversified away by investing in both Far EasTone and Taiwan Mobile 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 Far EasTone and Taiwan Mobile into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Far EasTone Telecommunications and Taiwan Mobile Co, you can compare the effects of market volatilities on Far EasTone and Taiwan Mobile 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 Far EasTone with a short position of Taiwan Mobile. Check out your portfolio center. Please also check ongoing floating volatility patterns of Far EasTone and Taiwan Mobile.

Diversification Opportunities for Far EasTone and Taiwan Mobile

0.84

Correlation Coefficient

Far EasTone  Taiwan Mobile

Very poor diversification

The 3 months correlation between Far and Taiwan is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Far EasTone Telecommunications and Taiwan Mobile Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Taiwan Mobile and Far EasTone 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 Far EasTone Telecommunications are associated (or correlated) with Taiwan Mobile. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Taiwan Mobile has no effect on the direction of Far EasTone i.e., Far EasTone and Taiwan Mobile go up and down completely randomly.

Pair Corralation between Far EasTone and Taiwan Mobile

Assuming the 90 days trading horizon Far EasTone is expected to generate 1.35 times less return on investment than Taiwan Mobile. In addition to that, Far EasTone is 1.12 times more volatile than Taiwan Mobile Co. It trades about 0.1 of its total potential returns per unit of risk. Taiwan Mobile Co is currently generating about 0.16 per unit of volatility. If you would invest  11,100  in Taiwan Mobile Co on September 16, 2024 and sell it today you would earn a total of  350.00  from holding Taiwan Mobile Co or generate 3.15% return on investment over 90 days.

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

Far EasTone Telecommunications  vs.  Taiwan Mobile Co

Far EasTone Telecomm

Risk-Adjusted Performance

0 of 100

Very Weak

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

Taiwan Mobile

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Taiwan Mobile Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Taiwan Mobile 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 Far EasTone and Taiwan Mobile

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

The idea behind Far EasTone Telecommunications and Taiwan Mobile Co 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .