Correlation Between Taiwan Shin and Taiwan Cogeneration

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

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

Diversification Opportunities for Taiwan Shin and Taiwan Cogeneration

0.7

Correlation Coefficient

Taiwan Shin  Taiwan Cogeneration

Poor diversification

The 3 months correlation between Taiwan and Taiwan is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Shin Kong and Taiwan Cogeneration Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Taiwan Cogeneration Corp and Taiwan Shin 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 Shin Kong are associated (or correlated) with Taiwan Cogeneration. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Taiwan Cogeneration Corp has no effect on the direction of Taiwan Shin i.e., Taiwan Shin and Taiwan Cogeneration go up and down completely randomly.

Pair Corralation between Taiwan Shin and Taiwan Cogeneration

Assuming the 90 days trading horizon Taiwan Shin is expected to generate 1.13 times less return on investment than Taiwan Cogeneration. But when comparing it to its historical volatility, Taiwan Shin Kong is 2.43 times less risky than Taiwan Cogeneration. It trades about 0.05 of its potential returns per unit of risk. Taiwan Cogeneration Corp is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  4,185  in Taiwan Cogeneration Corp on December 30, 2024 and sell it today you would earn a total of  35.00  from holding Taiwan Cogeneration Corp or generate 0.84% return on investment over 90 days.

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

Taiwan Shin Kong  vs.  Taiwan Cogeneration Corp

Taiwan Shin Kong

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Taiwan Shin Kong are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Taiwan Shin is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Taiwan Cogeneration Corp

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Taiwan Cogeneration Corp are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Taiwan Cogeneration 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 Shin and Taiwan Cogeneration

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

The idea behind Taiwan Shin Kong and Taiwan Cogeneration 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.

Check out your portfolio center.

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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.