Correlation Between Great Taipei and Information Technology

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

Diversification Opportunities for Great Taipei and Information Technology

0.67

Correlation Coefficient

Great Taipei  Information Technology

Poor diversification

The 3 months correlation between Great and Information is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Great Taipei Gas and Information Technology Total in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Information Technology 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 Information Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Information Technology has no effect on the direction of Great Taipei i.e., Great Taipei and Information Technology go up and down completely randomly.

Pair Corralation between Great Taipei and Information Technology

Assuming the 90 days trading horizon Great Taipei is expected to generate 5.74 times less return on investment than Information Technology. But when comparing it to its historical volatility, Great Taipei Gas is 7.76 times less risky than Information Technology. It trades about 0.15 of its potential returns per unit of risk. Information Technology Total is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  4,500  in Information Technology Total on December 2, 2024 and sell it today you would earn a total of  510.00  from holding Information Technology Total or generate 11.33% return on investment over 90 days.

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

Great Taipei Gas  vs.  Information Technology Total

Great Taipei Gas

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Great Taipei Gas are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. 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.

Information Technology

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Information Technology Total are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Information Technology showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Great Taipei and Information Technology

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

The idea behind Great Taipei Gas and Information Technology Total 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.