Correlation Between Great China and Taiwan Hon

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

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

Diversification Opportunities for Great China and Taiwan Hon

0.3

Correlation Coefficient

Great China  Taiwan Hon

Weak diversification

The 3 months correlation between Great and Taiwan is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Great China Metal 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 Great China 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 Great China Metal 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 Great China i.e., Great China and Taiwan Hon go up and down completely randomly.

Pair Corralation between Great China and Taiwan Hon

Assuming the 90 days trading horizon Great China Metal is expected to under-perform the Taiwan Hon. But the stock apears to be less risky and, when comparing its historical volatility, Great China Metal is 3.46 times less risky than Taiwan Hon. The stock trades about -0.03 of its potential returns per unit of risk. The Taiwan Hon Chuan is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  10,950  in Taiwan Hon Chuan on September 14, 2024 and sell it today you would earn a total of  3,500  from holding Taiwan Hon Chuan or generate 31.96% return on investment over 90 days.

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

Great China Metal  vs.  Taiwan Hon Chuan

Great China Metal

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Great China Metal has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Great China is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Taiwan Hon Chuan

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Taiwan Hon Chuan has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal 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.

Pair Trading with Great China and Taiwan Hon

The main advantage of trading using opposite Great China and Taiwan Hon positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Great China 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 Great China Metal 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.