Correlation Between Taiwan Cooperative and United Orthopedic

Can any of the company-specific risk be diversified away by investing in both Taiwan Cooperative and United Orthopedic 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 United Orthopedic 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 United Orthopedic, you can compare the effects of market volatilities on Taiwan Cooperative and United Orthopedic 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 United Orthopedic. Check out your portfolio center. Please also check ongoing floating volatility patterns of Taiwan Cooperative and United Orthopedic.

Diversification Opportunities for Taiwan Cooperative and United Orthopedic

0.21

Correlation Coefficient

Taiwan Cooperative  United Orthopedic

Modest diversification

The 3 months correlation between Taiwan and United is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Cooperative Financial and United Orthopedic in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United Orthopedic 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 United Orthopedic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of United Orthopedic has no effect on the direction of Taiwan Cooperative i.e., Taiwan Cooperative and United Orthopedic go up and down completely randomly.

Pair Corralation between Taiwan Cooperative and United Orthopedic

Assuming the 90 days trading horizon Taiwan Cooperative Financial is expected to generate 0.77 times more return on investment than United Orthopedic. However, Taiwan Cooperative Financial is 1.29 times less risky than United Orthopedic. It trades about -0.01 of its potential returns per unit of risk. United Orthopedic is currently generating about -0.06 per unit of risk. If you would invest  2,440  in Taiwan Cooperative Financial on December 30, 2024 and sell it today you would lose (15.00) from holding Taiwan Cooperative Financial or give up 0.61% of portfolio value over 90 days.

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

Taiwan Cooperative Financial  vs.  United Orthopedic

Taiwan Cooperative

Risk-Adjusted Performance

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.

United Orthopedic

Risk-Adjusted Performance

Very Weak

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

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

The idea behind Taiwan Cooperative Financial and United Orthopedic 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.