Correlation Between Te Chang and TECO Electric

Can any of the company-specific risk be diversified away by investing in both Te Chang and TECO Electric 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 Te Chang and TECO Electric into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Te Chang Construction and TECO Electric Machinery, you can compare the effects of market volatilities on Te Chang and TECO Electric 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 Te Chang with a short position of TECO Electric. Check out your portfolio center. Please also check ongoing floating volatility patterns of Te Chang and TECO Electric.

Diversification Opportunities for Te Chang and TECO Electric

0.69

Correlation Coefficient

Te Chang  TECO Electric

Poor diversification

The 3 months correlation between 5511 and TECO is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Te Chang Construction and TECO Electric Machinery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TECO Electric Machinery and Te Chang 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 Te Chang Construction are associated (or correlated) with TECO Electric. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TECO Electric Machinery has no effect on the direction of Te Chang i.e., Te Chang and TECO Electric go up and down completely randomly.

Pair Corralation between Te Chang and TECO Electric

Assuming the 90 days trading horizon Te Chang Construction is expected to generate 0.36 times more return on investment than TECO Electric. However, Te Chang Construction is 2.8 times less risky than TECO Electric. It trades about 0.07 of its potential returns per unit of risk. TECO Electric Machinery is currently generating about 0.0 per unit of risk. If you would invest  6,220  in Te Chang Construction on September 20, 2024 and sell it today you would earn a total of  60.00  from holding Te Chang Construction or generate 0.96% return on investment over 90 days.

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

Te Chang Construction  vs.  TECO Electric Machinery

Te Chang Construction

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Te Chang Construction are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Te Chang may actually be approaching a critical reversion point that can send shares even higher in January 2025.

TECO Electric Machinery

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in TECO Electric Machinery are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, TECO Electric may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Te Chang and TECO Electric

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

The idea behind Te Chang Construction and TECO Electric Machinery 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 Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.