Correlation Between Taiwan Chinsan and Excellence Optoelectronic

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

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

Diversification Opportunities for Taiwan Chinsan and Excellence Optoelectronic

0.13

Correlation Coefficient

Taiwan Chinsan  Excellence Optoelectronic

Average diversification

The 3 months correlation between Taiwan and Excellence is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Chinsan Electronic and Excellence Optoelectronic in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Excellence Optoelectronic and Taiwan Chinsan 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 Chinsan Electronic are associated (or correlated) with Excellence Optoelectronic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Excellence Optoelectronic has no effect on the direction of Taiwan Chinsan i.e., Taiwan Chinsan and Excellence Optoelectronic go up and down completely randomly.

Pair Corralation between Taiwan Chinsan and Excellence Optoelectronic

Assuming the 90 days trading horizon Taiwan Chinsan Electronic is expected to generate 0.96 times more return on investment than Excellence Optoelectronic. However, Taiwan Chinsan Electronic is 1.04 times less risky than Excellence Optoelectronic. It trades about 0.14 of its potential returns per unit of risk. Excellence Optoelectronic is currently generating about 0.05 per unit of risk. If you would invest  3,430  in Taiwan Chinsan Electronic on September 15, 2024 and sell it today you would earn a total of  1,090  from holding Taiwan Chinsan Electronic or generate 31.78% return on investment over 90 days.

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

Taiwan Chinsan Electronic  vs.  Excellence Optoelectronic

Taiwan Chinsan Electronic

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Taiwan Chinsan Electronic are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Taiwan Chinsan showed solid returns over the last few months and may actually be approaching a breakup point.

Excellence Optoelectronic

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Excellence Optoelectronic are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Excellence Optoelectronic may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Taiwan Chinsan and Excellence Optoelectronic

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

The idea behind Taiwan Chinsan Electronic and Excellence Optoelectronic 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.