Correlation Between Associated Industries and Taiwan Tea

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

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

Diversification Opportunities for Associated Industries and Taiwan Tea

0.71

Correlation Coefficient

Associated Industries  Taiwan Tea

Poor diversification

The 3 months correlation between Associated and Taiwan is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Associated Industries China and Taiwan Tea Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Taiwan Tea Corp and Associated Industries 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 Associated Industries China are associated (or correlated) with Taiwan Tea. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Taiwan Tea Corp has no effect on the direction of Associated Industries i.e., Associated Industries and Taiwan Tea go up and down completely randomly.

Pair Corralation between Associated Industries and Taiwan Tea

Assuming the 90 days trading horizon Associated Industries China is expected to generate 0.68 times more return on investment than Taiwan Tea. However, Associated Industries China is 1.48 times less risky than Taiwan Tea. It trades about -0.12 of its potential returns per unit of risk. Taiwan Tea Corp is currently generating about -0.09 per unit of risk. If you would invest  1,275  in Associated Industries China on October 22, 2024 and sell it today you would lose (90.00) from holding Associated Industries China or give up 7.06% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.46%
Values	Daily Returns

Associated Industries China  vs.  Taiwan Tea Corp

Associated Industries

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Associated Industries China 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.

Taiwan Tea Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Taiwan Tea Corp 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 Associated Industries and Taiwan Tea

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

The idea behind Associated Industries China and Taiwan Tea Corp 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.