Correlation Between Pou Chen and Taiwan Hon

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

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

Diversification Opportunities for Pou Chen and Taiwan Hon

-0.34

Correlation Coefficient

Pou Chen  Taiwan Hon

Very good diversification

The 3 months correlation between Pou and Taiwan is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding Pou Chen Corp and Taiwan Hon Chuan in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Taiwan Hon Chuan and Pou Chen 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 Pou Chen Corp are associated (or correlated) with Taiwan Hon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Taiwan Hon Chuan has no effect on the direction of Pou Chen i.e., Pou Chen and Taiwan Hon go up and down completely randomly.

Pair Corralation between Pou Chen and Taiwan Hon

Assuming the 90 days trading horizon Pou Chen Corp is expected to under-perform the Taiwan Hon. In addition to that, Pou Chen is 1.26 times more volatile than Taiwan Hon Chuan. It trades about -0.15 of its total potential returns per unit of risk. Taiwan Hon Chuan is currently generating about 0.16 per unit of volatility. If you would invest  14,900  in Taiwan Hon Chuan on December 4, 2024 and sell it today you would earn a total of  1,700  from holding Taiwan Hon Chuan or generate 11.41% return on investment over 90 days.

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

Pou Chen Corp  vs.  Taiwan Hon Chuan

Pou Chen Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Pou Chen Corp 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 April 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Taiwan Hon Chuan

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Taiwan Hon Chuan are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Taiwan Hon showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Pou Chen and Taiwan Hon

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

The idea behind Pou Chen Corp and Taiwan Hon Chuan 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.