Correlation Between Taiwan Steel and Century Wind
Can any of the company-specific risk be diversified away by investing in both Taiwan Steel and Century Wind 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 Steel and Century Wind into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Taiwan Steel Union and Century Wind Power, you can compare the effects of market volatilities on Taiwan Steel and Century Wind 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 Steel with a short position of Century Wind. Check out your portfolio center. Please also check ongoing floating volatility patterns of Taiwan Steel and Century Wind.
Diversification Opportunities for Taiwan Steel and Century Wind
0.73 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Taiwan and Century is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Steel Union and Century Wind Power in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Century Wind Power and Taiwan Steel 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 Steel Union are associated (or correlated) with Century Wind. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Century Wind Power has no effect on the direction of Taiwan Steel i.e., Taiwan Steel and Century Wind go up and down completely randomly.
Pair Corralation between Taiwan Steel and Century Wind
Assuming the 90 days trading horizon Taiwan Steel Union is expected to under-perform the Century Wind. But the stock apears to be less risky and, when comparing its historical volatility, Taiwan Steel Union is 1.54 times less risky than Century Wind. The stock trades about -0.15 of its potential returns per unit of risk. The Century Wind Power is currently generating about -0.09 of returns per unit of risk over similar time horizon. If you would invest 30,500 in Century Wind Power on October 26, 2024 and sell it today you would lose (4,000) from holding Century Wind Power or give up 13.11% of portfolio value over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Significant |
Accuracy | 100.0% |
Values | Daily Returns |
Taiwan Steel Union vs. Century Wind Power
Performance |
Timeline |
Taiwan Steel Union |
Century Wind Power |
Taiwan Steel and Century Wind Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Taiwan Steel and Century Wind
The main advantage of trading using opposite Taiwan Steel and Century Wind positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Taiwan Steel position performs unexpectedly, Century Wind 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 Century Wind will offset losses from the drop in Century Wind's long position.Taiwan Steel vs. Cleanaway Co | ||
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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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.
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