Correlation Between Taiwan Cooperative and Bank of Kaohsiung

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

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

Diversification Opportunities for Taiwan Cooperative and Bank of Kaohsiung

0.83

Correlation Coefficient

Taiwan Cooperative  Bank of Kaohsiung

Very poor diversification

The 3 months correlation between Taiwan and Bank is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Cooperative Financial and Bank of Kaohsiung in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bank of Kaohsiung and Taiwan Cooperative 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 Cooperative Financial are associated (or correlated) with Bank of Kaohsiung. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bank of Kaohsiung has no effect on the direction of Taiwan Cooperative i.e., Taiwan Cooperative and Bank of Kaohsiung go up and down completely randomly.

Pair Corralation between Taiwan Cooperative and Bank of Kaohsiung

Assuming the 90 days trading horizon Taiwan Cooperative Financial is expected to under-perform the Bank of Kaohsiung. But the stock apears to be less risky and, when comparing its historical volatility, Taiwan Cooperative Financial is 1.01 times less risky than Bank of Kaohsiung. The stock trades about -0.02 of its potential returns per unit of risk. The Bank of Kaohsiung is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  1,220  in Bank of Kaohsiung on October 9, 2024 and sell it today you would lose (75.00) from holding Bank of Kaohsiung or give up 6.15% of portfolio value over 90 days.

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

Taiwan Cooperative Financial  vs.  Bank of Kaohsiung

Taiwan Cooperative

Risk-Adjusted Performance

0 of 100

Very Weak

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

Bank of Kaohsiung

Risk-Adjusted Performance

0 of 100

Very Weak

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

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

The idea behind Taiwan Cooperative Financial and Bank of Kaohsiung 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 Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.