Correlation Between Grand Ocean and Taiwan Weighted

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

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

Diversification Opportunities for Grand Ocean and Taiwan Weighted

0.81

Correlation Coefficient

Grand Ocean  Taiwan Weighted

Very poor diversification

The 3 months correlation between Grand and Taiwan is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Grand Ocean Retail and Taiwan Weighted in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Taiwan Weighted and Grand Ocean 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 Grand Ocean Retail are associated (or correlated) with Taiwan Weighted. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Taiwan Weighted has no effect on the direction of Grand Ocean i.e., Grand Ocean and Taiwan Weighted go up and down completely randomly.

Pair Corralation between Grand Ocean and Taiwan Weighted

Assuming the 90 days trading horizon Grand Ocean Retail is expected to generate 4.31 times more return on investment than Taiwan Weighted. However, Grand Ocean is 4.31 times more volatile than Taiwan Weighted. It trades about 0.17 of its potential returns per unit of risk. Taiwan Weighted is currently generating about 0.14 per unit of risk. If you would invest  833.00  in Grand Ocean Retail on September 5, 2024 and sell it today you would earn a total of  432.00  from holding Grand Ocean Retail or generate 51.86% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	95.24%
Values	Daily Returns

Grand Ocean Retail  vs.  Taiwan Weighted

Pair Trading with Grand Ocean and Taiwan Weighted

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

The idea behind Grand Ocean Retail and Taiwan Weighted 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.