Correlation Between Taiwan Fu and Eternal Materials

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

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

Diversification Opportunities for Taiwan Fu and Eternal Materials

0.69

Correlation Coefficient

Taiwan Fu  Eternal Materials

Poor diversification

The 3 months correlation between Taiwan and Eternal is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Fu Hsing and Eternal Materials Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eternal Materials and Taiwan Fu 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 Fu Hsing are associated (or correlated) with Eternal Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eternal Materials has no effect on the direction of Taiwan Fu i.e., Taiwan Fu and Eternal Materials go up and down completely randomly.

Pair Corralation between Taiwan Fu and Eternal Materials

Assuming the 90 days trading horizon Taiwan Fu Hsing is expected to generate 1.57 times more return on investment than Eternal Materials. However, Taiwan Fu is 1.57 times more volatile than Eternal Materials Co. It trades about -0.04 of its potential returns per unit of risk. Eternal Materials Co is currently generating about -0.14 per unit of risk. If you would invest  5,590  in Taiwan Fu Hsing on September 18, 2024 and sell it today you would lose (410.00) from holding Taiwan Fu Hsing or give up 7.33% of portfolio value over 90 days.

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

Taiwan Fu Hsing  vs.  Eternal Materials Co

Taiwan Fu Hsing

Risk-Adjusted Performance

0 of 100

Very Weak

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

Eternal Materials

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Eternal Materials Co 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 Taiwan Fu and Eternal Materials

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

The idea behind Taiwan Fu Hsing and Eternal Materials Co 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 Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.