Correlation Between Taiwan Secom and Charoen Pokphand

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

By analyzing existing cross correlation between Taiwan Secom Co and Charoen Pokphand Enterprise, you can compare the effects of market volatilities on Taiwan Secom and Charoen Pokphand 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 Taiwan Secom with a short position of Charoen Pokphand. Check out your portfolio center. Please also check ongoing floating volatility patterns of Taiwan Secom and Charoen Pokphand.

Diversification Opportunities for Taiwan Secom and Charoen Pokphand

0.37

Correlation Coefficient

Taiwan Secom  Charoen Pokphand

Weak diversification

The 3 months correlation between Taiwan and Charoen is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Secom Co and Charoen Pokphand Enterprise in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Charoen Pokphand Ent and Taiwan Secom 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 Taiwan Secom Co are associated (or correlated) with Charoen Pokphand. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Charoen Pokphand Ent has no effect on the direction of Taiwan Secom i.e., Taiwan Secom and Charoen Pokphand go up and down completely randomly.

Pair Corralation between Taiwan Secom and Charoen Pokphand

Assuming the 90 days trading horizon Taiwan Secom is expected to generate 5.9 times less return on investment than Charoen Pokphand. But when comparing it to its historical volatility, Taiwan Secom Co is 1.01 times less risky than Charoen Pokphand. It trades about 0.11 of its potential returns per unit of risk. Charoen Pokphand Enterprise is currently generating about 0.63 of returns per unit of risk over similar time horizon. If you would invest  9,470  in Charoen Pokphand Enterprise on December 11, 2024 and sell it today you would earn a total of  980.00  from holding Charoen Pokphand Enterprise or generate 10.35% return on investment over 90 days.

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

Taiwan Secom Co  vs.  Charoen Pokphand Enterprise

Taiwan Secom

Risk-Adjusted Performance

Very Weak

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

Charoen Pokphand Ent

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Charoen Pokphand Enterprise are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Charoen Pokphand is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Taiwan Secom and Charoen Pokphand

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

The idea behind Taiwan Secom Co and Charoen Pokphand Enterprise 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 Transaction History module to view history of all your transactions and understand their impact on performance.