Correlation Between Taiwan FamilyMart and Hotai

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

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

Diversification Opportunities for Taiwan FamilyMart and Hotai

0.08

Correlation Coefficient

Taiwan FamilyMart  Hotai

Significant diversification

The 3 months correlation between Taiwan and Hotai is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan FamilyMart Co and Hotai Motor Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hotai Motor and Taiwan FamilyMart 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 FamilyMart Co are associated (or correlated) with Hotai. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hotai Motor has no effect on the direction of Taiwan FamilyMart i.e., Taiwan FamilyMart and Hotai go up and down completely randomly.

Pair Corralation between Taiwan FamilyMart and Hotai

Assuming the 90 days trading horizon Taiwan FamilyMart Co is expected to generate 0.44 times more return on investment than Hotai. However, Taiwan FamilyMart Co is 2.25 times less risky than Hotai. It trades about 0.02 of its potential returns per unit of risk. Hotai Motor Co is currently generating about -0.07 per unit of risk. If you would invest  18,800  in Taiwan FamilyMart Co on October 24, 2024 and sell it today you would earn a total of  100.00  from holding Taiwan FamilyMart Co or generate 0.53% return on investment over 90 days.

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

Taiwan FamilyMart Co  vs.  Hotai Motor Co

Taiwan FamilyMart

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Taiwan FamilyMart Co are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Taiwan FamilyMart is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Hotai Motor

Risk-Adjusted Performance

0 of 100

Very Weak

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

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

The idea behind Taiwan FamilyMart Co and Hotai Motor 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.

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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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.