Correlation Between Taiwan Taomee and InnoDisk

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

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

Diversification Opportunities for Taiwan Taomee and InnoDisk

-0.11

Correlation Coefficient

Taiwan Taomee  InnoDisk

Good diversification

The 3 months correlation between Taiwan and InnoDisk is -0.11. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Taomee Co and InnoDisk in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on InnoDisk and Taiwan Taomee 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 Taomee Co are associated (or correlated) with InnoDisk. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of InnoDisk has no effect on the direction of Taiwan Taomee i.e., Taiwan Taomee and InnoDisk go up and down completely randomly.

Pair Corralation between Taiwan Taomee and InnoDisk

Assuming the 90 days trading horizon Taiwan Taomee is expected to generate 2.9 times less return on investment than InnoDisk. In addition to that, Taiwan Taomee is 1.17 times more volatile than InnoDisk. It trades about 0.01 of its total potential returns per unit of risk. InnoDisk is currently generating about 0.03 per unit of volatility. If you would invest  16,696  in InnoDisk on October 20, 2024 and sell it today you would earn a total of  4,254  from holding InnoDisk or generate 25.48% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.8%
Values	Daily Returns

Taiwan Taomee Co  vs.  InnoDisk

Taiwan Taomee

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Taiwan Taomee Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Taiwan Taomee is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

InnoDisk

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days InnoDisk has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in February 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Pair Trading with Taiwan Taomee and InnoDisk

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

The idea behind Taiwan Taomee Co and InnoDisk 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 Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .