Correlation Between Sunfun Info and Taiwan Taomee

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

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

Diversification Opportunities for Sunfun Info and Taiwan Taomee

-0.13

Correlation Coefficient

Sunfun Info  Taiwan Taomee

Good diversification

The 3 months correlation between Sunfun and Taiwan is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding Sunfun Info Co and Taiwan Taomee Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Taiwan Taomee and Sunfun Info 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 Sunfun Info Co are associated (or correlated) with Taiwan Taomee. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Taiwan Taomee has no effect on the direction of Sunfun Info i.e., Sunfun Info and Taiwan Taomee go up and down completely randomly.

Pair Corralation between Sunfun Info and Taiwan Taomee

Assuming the 90 days trading horizon Sunfun Info Co is expected to generate 3.32 times more return on investment than Taiwan Taomee. However, Sunfun Info is 3.32 times more volatile than Taiwan Taomee Co. It trades about 0.16 of its potential returns per unit of risk. Taiwan Taomee Co is currently generating about 0.09 per unit of risk. If you would invest  3,140  in Sunfun Info Co on September 23, 2024 and sell it today you would earn a total of  555.00  from holding Sunfun Info Co or generate 17.68% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

Sunfun Info Co  vs.  Taiwan Taomee Co

Sunfun Info

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sunfun Info Co are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Sunfun Info showed solid returns over the last few months and may actually be approaching a breakup point.

Taiwan Taomee

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Taiwan Taomee Co are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Taiwan Taomee may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Sunfun Info and Taiwan Taomee

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

The idea behind Sunfun Info Co and Taiwan Taomee 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.

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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.