Correlation Between Taiwan Secom and Taiwan Hon

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

Diversification Opportunities for Taiwan Secom and Taiwan Hon

-0.45

Correlation Coefficient

Taiwan Secom  Taiwan Hon

Very good diversification

The 3 months correlation between Taiwan and Taiwan is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Secom Co and Taiwan Hon Chuan in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Taiwan Hon Chuan 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 Taiwan Hon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Taiwan Hon Chuan has no effect on the direction of Taiwan Secom i.e., Taiwan Secom and Taiwan Hon go up and down completely randomly.

Pair Corralation between Taiwan Secom and Taiwan Hon

Assuming the 90 days trading horizon Taiwan Secom Co is expected to under-perform the Taiwan Hon. In addition to that, Taiwan Secom is 1.02 times more volatile than Taiwan Hon Chuan. It trades about -0.05 of its total potential returns per unit of risk. Taiwan Hon Chuan is currently generating about 0.16 per unit of volatility. If you would invest  14,900  in Taiwan Hon Chuan on December 4, 2024 and sell it today you would earn a total of  1,700  from holding Taiwan Hon Chuan or generate 11.41% return on investment over 90 days.

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

Taiwan Secom Co  vs.  Taiwan Hon Chuan

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.

Taiwan Hon Chuan

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Taiwan Hon Chuan are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Taiwan Hon showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Taiwan Secom and Taiwan Hon

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

The idea behind Taiwan Secom Co and Taiwan Hon Chuan 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.