Correlation Between Taiwan Hon and Pou Chen

Can any of the company-specific risk be diversified away by investing in both Taiwan Hon 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 Hon 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 Hon Chuan and Pou Chen Corp, you can compare the effects of market volatilities on Taiwan Hon 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 Hon with a short position of Pou Chen. Check out your portfolio center. Please also check ongoing floating volatility patterns of Taiwan Hon and Pou Chen.

Diversification Opportunities for Taiwan Hon and Pou Chen

-0.34

Correlation Coefficient

Taiwan Hon  Pou Chen

Very good diversification

The 3 months correlation between Taiwan and Pou is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Hon Chuan 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 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 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 Hon i.e., Taiwan Hon and Pou Chen go up and down completely randomly.

Pair Corralation between Taiwan Hon and Pou Chen

Assuming the 90 days trading horizon Taiwan Hon Chuan is expected to generate 0.79 times more return on investment than Pou Chen. However, Taiwan Hon Chuan is 1.26 times less risky than Pou Chen. It trades about 0.16 of its potential returns per unit of risk. Pou Chen Corp is currently generating about -0.15 per unit of risk. If you would invest  14,900  in Taiwan Hon Chuan on December 4, 2024 and sell it today you would earn a total of  1,700  from holding Taiwan Hon Chuan or generate 11.41% 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.  Pou Chen Corp

Taiwan Hon Chuan

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Taiwan Hon Chuan are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Taiwan Hon showed solid returns over the last few months and may actually be approaching a breakup point.

Pou Chen Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Pou Chen Corp 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.

Pair Trading with Taiwan Hon and Pou Chen

The main advantage of trading using opposite Taiwan Hon and Pou Chen positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Taiwan Hon 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 Hon Chuan 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.