Correlation Between Baotek Industrial and Taiwan Paiho

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

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

Diversification Opportunities for Baotek Industrial and Taiwan Paiho

0.74

Correlation Coefficient

Baotek Industrial  Taiwan Paiho

Poor diversification

The 3 months correlation between Baotek and Taiwan is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Baotek Industrial Materials and Taiwan Paiho in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Taiwan Paiho and Baotek Industrial 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 Baotek Industrial Materials are associated (or correlated) with Taiwan Paiho. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Taiwan Paiho has no effect on the direction of Baotek Industrial i.e., Baotek Industrial and Taiwan Paiho go up and down completely randomly.

Pair Corralation between Baotek Industrial and Taiwan Paiho

Assuming the 90 days trading horizon Baotek Industrial Materials is expected to under-perform the Taiwan Paiho. In addition to that, Baotek Industrial is 1.58 times more volatile than Taiwan Paiho. It trades about -0.04 of its total potential returns per unit of risk. Taiwan Paiho is currently generating about -0.03 per unit of volatility. If you would invest  6,860  in Taiwan Paiho on December 30, 2024 and sell it today you would lose (220.00) from holding Taiwan Paiho or give up 3.21% of portfolio value over 90 days.

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

Baotek Industrial Materials  vs.  Taiwan Paiho

Baotek Industrial

Risk-Adjusted Performance

Very Weak

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

Taiwan Paiho

Risk-Adjusted Performance

Very Weak

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

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

The idea behind Baotek Industrial Materials and Taiwan Paiho 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.