Correlation Between Great Taipei and Advantech

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

By analyzing existing cross correlation between Great Taipei Gas and Advantech Co, you can compare the effects of market volatilities on Great Taipei and Advantech 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 Taipei with a short position of Advantech. Check out your portfolio center. Please also check ongoing floating volatility patterns of Great Taipei and Advantech.

Diversification Opportunities for Great Taipei and Advantech

0.82

Correlation Coefficient

Great Taipei  Advantech

Very poor diversification

The 3 months correlation between Great and Advantech is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Great Taipei Gas and Advantech Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Advantech and Great Taipei 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 Taipei Gas are associated (or correlated) with Advantech. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Advantech has no effect on the direction of Great Taipei i.e., Great Taipei and Advantech go up and down completely randomly.

Pair Corralation between Great Taipei and Advantech

Assuming the 90 days trading horizon Great Taipei is expected to generate 287.63 times less return on investment than Advantech. But when comparing it to its historical volatility, Great Taipei Gas is 5.51 times less risky than Advantech. It trades about 0.0 of its potential returns per unit of risk. Advantech Co is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  34,550  in Advantech Co on December 29, 2024 and sell it today you would earn a total of  4,250  from holding Advantech Co or generate 12.3% return on investment over 90 days.

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

Great Taipei Gas  vs.  Advantech Co

Great Taipei Gas

Risk-Adjusted Performance

Modest

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

Advantech

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Advantech Co are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Advantech showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Great Taipei and Advantech

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

The idea behind Great Taipei Gas and Advantech Co 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.