Correlation Between Taiwan Secom and China Ecotek

Can any of the company-specific risk be diversified away by investing in both Taiwan Secom and China Ecotek 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 China Ecotek 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 China Ecotek Corp, you can compare the effects of market volatilities on Taiwan Secom and China Ecotek 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 China Ecotek. Check out your portfolio center. Please also check ongoing floating volatility patterns of Taiwan Secom and China Ecotek.

Diversification Opportunities for Taiwan Secom and China Ecotek

0.57

Correlation Coefficient

Taiwan Secom  China Ecotek

Very weak diversification

The 3 months correlation between Taiwan and China is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Secom Co and China Ecotek Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Ecotek Corp 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 China Ecotek. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Ecotek Corp has no effect on the direction of Taiwan Secom i.e., Taiwan Secom and China Ecotek go up and down completely randomly.

Pair Corralation between Taiwan Secom and China Ecotek

Assuming the 90 days trading horizon Taiwan Secom Co is expected to under-perform the China Ecotek. In addition to that, Taiwan Secom is 1.49 times more volatile than China Ecotek Corp. It trades about -0.08 of its total potential returns per unit of risk. China Ecotek Corp is currently generating about -0.02 per unit of volatility. If you would invest  6,220  in China Ecotek Corp on December 5, 2024 and sell it today you would lose (80.00) from holding China Ecotek Corp or give up 1.29% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.21%
Values	Daily Returns

Taiwan Secom Co  vs.  China Ecotek Corp

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.

China Ecotek Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days China Ecotek Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, China Ecotek 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 China Ecotek

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

The idea behind Taiwan Secom Co and China Ecotek 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.