Correlation Between Taiwan Hon and Universal

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

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

Diversification Opportunities for Taiwan Hon and Universal

-0.2

Correlation Coefficient

Taiwan Hon  Universal

Good diversification

The 3 months correlation between Taiwan and Universal is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Hon Chuan and Universal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Universal and Taiwan Hon 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 Hon Chuan are associated (or correlated) with Universal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Universal has no effect on the direction of Taiwan Hon i.e., Taiwan Hon and Universal go up and down completely randomly.

Pair Corralation between Taiwan Hon and Universal

Assuming the 90 days trading horizon Taiwan Hon is expected to generate 4.98 times less return on investment than Universal. But when comparing it to its historical volatility, Taiwan Hon Chuan is 4.37 times less risky than Universal. It trades about 0.2 of its potential returns per unit of risk. Universal is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  2,570  in Universal on October 20, 2024 and sell it today you would earn a total of  705.00  from holding Universal or generate 27.43% return on investment over 90 days.

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

Taiwan Hon Chuan  vs.  Universal

Taiwan Hon Chuan

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Taiwan Hon Chuan has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Taiwan Hon is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Universal

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Universal are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Universal showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Taiwan Hon and Universal

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

The idea behind Taiwan Hon Chuan and Universal 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.