Correlation Between Tai Tung and Microelectronics

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

By analyzing existing cross correlation between Tai Tung Communication and Microelectronics Technology, you can compare the effects of market volatilities on Tai Tung and Microelectronics 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 Tai Tung with a short position of Microelectronics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tai Tung and Microelectronics.

Diversification Opportunities for Tai Tung and Microelectronics

0.4

Correlation Coefficient

Tai Tung  Microelectronics

Very weak diversification

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

Pair Corralation between Tai Tung and Microelectronics

Assuming the 90 days trading horizon Tai Tung Communication is expected to under-perform the Microelectronics. But the stock apears to be less risky and, when comparing its historical volatility, Tai Tung Communication is 1.01 times less risky than Microelectronics. The stock trades about -0.06 of its potential returns per unit of risk. The Microelectronics Technology is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  3,065  in Microelectronics Technology on September 16, 2024 and sell it today you would lose (35.00) from holding Microelectronics Technology or give up 1.14% of portfolio value over 90 days.

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

Tai Tung Communication  vs.  Microelectronics Technology

Tai Tung Communication

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Tai Tung Communication has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Microelectronics Tec

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Microelectronics Technology has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Microelectronics 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 Tai Tung and Microelectronics

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

The idea behind Tai Tung Communication and Microelectronics Technology 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.