Correlation Between Tacheng Real and Formosan Rubber

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

By analyzing existing cross correlation between Tacheng Real Estate and Formosan Rubber Group, you can compare the effects of market volatilities on Tacheng Real and Formosan Rubber 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 Tacheng Real with a short position of Formosan Rubber. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tacheng Real and Formosan Rubber.

Diversification Opportunities for Tacheng Real and Formosan Rubber

0.35

Correlation Coefficient

Tacheng Real  Formosan Rubber

Weak diversification

The 3 months correlation between Tacheng and Formosan is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Tacheng Real Estate and Formosan Rubber Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Formosan Rubber Group and Tacheng Real 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 Tacheng Real Estate are associated (or correlated) with Formosan Rubber. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Formosan Rubber Group has no effect on the direction of Tacheng Real i.e., Tacheng Real and Formosan Rubber go up and down completely randomly.

Pair Corralation between Tacheng Real and Formosan Rubber

Assuming the 90 days trading horizon Tacheng Real Estate is expected to generate 5.34 times more return on investment than Formosan Rubber. However, Tacheng Real is 5.34 times more volatile than Formosan Rubber Group. It trades about 0.08 of its potential returns per unit of risk. Formosan Rubber Group is currently generating about 0.04 per unit of risk. If you would invest  3,665  in Tacheng Real Estate on September 21, 2024 and sell it today you would earn a total of  435.00  from holding Tacheng Real Estate or generate 11.87% return on investment over 90 days.

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

Tacheng Real Estate  vs.  Formosan Rubber Group

Tacheng Real Estate

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Tacheng Real Estate are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Tacheng Real showed solid returns over the last few months and may actually be approaching a breakup point.

Formosan Rubber Group

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Formosan Rubber Group are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Formosan Rubber 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 Tacheng Real and Formosan Rubber

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

The idea behind Tacheng Real Estate and Formosan Rubber Group 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.