Correlation Between Taiwan Paiho and Bonny Worldwide

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

By analyzing existing cross correlation between Taiwan Paiho and Bonny Worldwide, you can compare the effects of market volatilities on Taiwan Paiho and Bonny Worldwide 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 Bonny Worldwide. Check out your portfolio center. Please also check ongoing floating volatility patterns of Taiwan Paiho and Bonny Worldwide.

Diversification Opportunities for Taiwan Paiho and Bonny Worldwide

0.34

Correlation Coefficient

Taiwan Paiho  Bonny Worldwide

Weak diversification

The 3 months correlation between Taiwan and Bonny is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Paiho and Bonny Worldwide in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bonny Worldwide 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 Bonny Worldwide. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bonny Worldwide has no effect on the direction of Taiwan Paiho i.e., Taiwan Paiho and Bonny Worldwide go up and down completely randomly.

Pair Corralation between Taiwan Paiho and Bonny Worldwide

Assuming the 90 days trading horizon Taiwan Paiho is expected to under-perform the Bonny Worldwide. But the stock apears to be less risky and, when comparing its historical volatility, Taiwan Paiho is 2.08 times less risky than Bonny Worldwide. The stock trades about -0.14 of its potential returns per unit of risk. The Bonny Worldwide is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  30,700  in Bonny Worldwide on December 5, 2024 and sell it today you would lose (4,150) from holding Bonny Worldwide or give up 13.52% of portfolio value over 90 days.

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

Taiwan Paiho  vs.  Bonny Worldwide

Taiwan Paiho

Risk-Adjusted Performance

Very Weak

Over the last 90 days Taiwan Paiho has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in April 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Bonny Worldwide

Risk-Adjusted Performance

Very Weak

Over the last 90 days Bonny Worldwide 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 Paiho and Bonny Worldwide

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

The idea behind Taiwan Paiho and Bonny Worldwide 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.