Correlation Between Taiwan Shin and Shin Shin

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

Diversification Opportunities for Taiwan Shin and Shin Shin

0.38

Correlation Coefficient

Taiwan Shin  Shin Shin

Weak diversification

The 3 months correlation between Taiwan and Shin is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Shin Kong and Shin Shin Natural in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shin Shin Natural 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 Shin Shin. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shin Shin Natural has no effect on the direction of Taiwan Shin i.e., Taiwan Shin and Shin Shin go up and down completely randomly.

Pair Corralation between Taiwan Shin and Shin Shin

Assuming the 90 days trading horizon Taiwan Shin Kong is expected to generate 0.58 times more return on investment than Shin Shin. However, Taiwan Shin Kong is 1.72 times less risky than Shin Shin. It trades about 0.05 of its potential returns per unit of risk. Shin Shin Natural is currently generating about -0.07 per unit of risk. If you would invest  4,100  in Taiwan Shin Kong on December 29, 2024 and sell it today you would earn a total of  35.00  from holding Taiwan Shin Kong or generate 0.85% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.25%
Values	Daily Returns

Taiwan Shin Kong  vs.  Shin Shin Natural

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.

Shin Shin Natural

Risk-Adjusted Performance

Very Weak

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

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

The idea behind Taiwan Shin Kong and Shin Shin Natural 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.