Correlation Between Taiwan Paiho and King Chou

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

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

Diversification Opportunities for Taiwan Paiho and King Chou

-0.26

Correlation Coefficient

Taiwan Paiho  King Chou

Very good diversification

The 3 months correlation between Taiwan and King is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Paiho and King Chou Marine in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on King Chou Marine and Taiwan Paiho 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 Paiho are associated (or correlated) with King Chou. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of King Chou Marine has no effect on the direction of Taiwan Paiho i.e., Taiwan Paiho and King Chou go up and down completely randomly.

Pair Corralation between Taiwan Paiho and King Chou

Assuming the 90 days trading horizon Taiwan Paiho is expected to generate 2.71 times more return on investment than King Chou. However, Taiwan Paiho is 2.71 times more volatile than King Chou Marine. It trades about 0.07 of its potential returns per unit of risk. King Chou Marine is currently generating about 0.06 per unit of risk. If you would invest  6,600  in Taiwan Paiho on September 18, 2024 and sell it today you would earn a total of  640.00  from holding Taiwan Paiho or generate 9.7% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

Taiwan Paiho  vs.  King Chou Marine

Taiwan Paiho

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Taiwan Paiho are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Taiwan Paiho may actually be approaching a critical reversion point that can send shares even higher in January 2025.

King Chou Marine

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in King Chou Marine are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, King Chou 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 Paiho and King Chou

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

The idea behind Taiwan Paiho and King Chou Marine 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.