Correlation Between Taiwan Paiho and Pou Chen

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

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

Diversification Opportunities for Taiwan Paiho and Pou Chen

0.61

Correlation Coefficient

Taiwan Paiho  Pou Chen

Poor diversification

The 3 months correlation between Taiwan and Pou is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Paiho and Pou Chen Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pou Chen Corp 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 Pou Chen. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pou Chen Corp has no effect on the direction of Taiwan Paiho i.e., Taiwan Paiho and Pou Chen go up and down completely randomly.

Pair Corralation between Taiwan Paiho and Pou Chen

Assuming the 90 days trading horizon Taiwan Paiho is expected to generate 2.26 times less return on investment than Pou Chen. In addition to that, Taiwan Paiho is 1.47 times more volatile than Pou Chen Corp. It trades about 0.07 of its total potential returns per unit of risk. Pou Chen Corp is currently generating about 0.22 per unit of volatility. If you would invest  3,445  in Pou Chen Corp on September 17, 2024 and sell it today you would earn a total of  850.00  from holding Pou Chen Corp or generate 24.67% return on investment over 90 days.

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

Taiwan Paiho  vs.  Pou Chen Corp

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.

Pou Chen Corp

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Pou Chen Corp are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Pou Chen showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Taiwan Paiho and Pou Chen

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

The idea behind Taiwan Paiho and Pou Chen 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.

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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 Money Managers module to screen money managers from public funds and ETFs managed around the world.