Correlation Between Tacheng Real and Taiwan Steel

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

Diversification Opportunities for Tacheng Real and Taiwan Steel

-0.4

Correlation Coefficient

Tacheng Real  Taiwan Steel

Very good diversification

The 3 months correlation between Tacheng and Taiwan is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Tacheng Real Estate and Taiwan Steel Union in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Taiwan Steel Union 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 Taiwan Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Taiwan Steel Union has no effect on the direction of Tacheng Real i.e., Tacheng Real and Taiwan Steel go up and down completely randomly.

Pair Corralation between Tacheng Real and Taiwan Steel

Assuming the 90 days trading horizon Tacheng Real Estate is expected to generate 1.75 times more return on investment than Taiwan Steel. However, Tacheng Real is 1.75 times more volatile than Taiwan Steel Union. It trades about 0.07 of its potential returns per unit of risk. Taiwan Steel Union is currently generating about 0.05 per unit of risk. If you would invest  2,292  in Tacheng Real Estate on September 29, 2024 and sell it today you would earn a total of  1,843  from holding Tacheng Real Estate or generate 80.41% return on investment over 90 days.

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

Tacheng Real Estate  vs.  Taiwan Steel Union

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 may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Taiwan Steel Union

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Taiwan Steel Union are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Taiwan Steel may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Tacheng Real and Taiwan Steel

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

The idea behind Tacheng Real Estate and Taiwan Steel Union 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.