Correlation Between Tai Tung and Yageo Corp

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

Diversification Opportunities for Tai Tung and Yageo Corp

-0.12

Correlation Coefficient

Tai Tung  Yageo Corp

Good diversification

The 3 months correlation between Tai and Yageo is -0.12. Overlapping area represents the amount of risk that can be diversified away by holding Tai Tung Communication and Yageo Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Yageo Corp 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 Yageo Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Yageo Corp has no effect on the direction of Tai Tung i.e., Tai Tung and Yageo Corp go up and down completely randomly.

Pair Corralation between Tai Tung and Yageo Corp

Assuming the 90 days trading horizon Tai Tung Communication is expected to under-perform the Yageo Corp. But the stock apears to be less risky and, when comparing its historical volatility, Tai Tung Communication is 1.5 times less risky than Yageo Corp. The stock trades about -0.05 of its potential returns per unit of risk. The Yageo Corp is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  54,300  in Yageo Corp on December 26, 2024 and sell it today you would lose (1,300) from holding Yageo Corp or give up 2.39% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.21%
Values	Daily Returns

Tai Tung Communication  vs.  Yageo Corp

Tai Tung Communication

Risk-Adjusted Performance

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 fairly stable basic indicators, Tai Tung is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Yageo Corp

Risk-Adjusted Performance

Very Weak

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

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

The idea behind Tai Tung Communication and Yageo Corp 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 Anywhere module to track or share privately all of your investments from the convenience of any device.