Correlation Between Taiwan Hon and Taiwan Secom

Can any of the company-specific risk be diversified away by investing in both Taiwan Hon and Taiwan Secom 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 Taiwan Secom 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 Taiwan Secom Co, you can compare the effects of market volatilities on Taiwan Hon and Taiwan Secom 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 Taiwan Secom. Check out your portfolio center. Please also check ongoing floating volatility patterns of Taiwan Hon and Taiwan Secom.

Diversification Opportunities for Taiwan Hon and Taiwan Secom

0.55

Correlation Coefficient

Taiwan Hon  Taiwan Secom

Very weak diversification

The 3 months correlation between Taiwan and Taiwan is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Hon Chuan and Taiwan Secom Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Taiwan Secom 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 Taiwan Secom. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Taiwan Secom has no effect on the direction of Taiwan Hon i.e., Taiwan Hon and Taiwan Secom go up and down completely randomly.

Pair Corralation between Taiwan Hon and Taiwan Secom

Assuming the 90 days trading horizon Taiwan Hon Chuan is expected to under-perform the Taiwan Secom. In addition to that, Taiwan Hon is 1.05 times more volatile than Taiwan Secom Co. It trades about -0.12 of its total potential returns per unit of risk. Taiwan Secom Co is currently generating about -0.06 per unit of volatility. If you would invest  13,800  in Taiwan Secom Co on September 14, 2024 and sell it today you would lose (750.00) from holding Taiwan Secom Co or give up 5.43% of portfolio value over 90 days.

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

Taiwan Hon Chuan  vs.  Taiwan Secom Co

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 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.

Taiwan Secom

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Taiwan Secom Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Taiwan Secom 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 Hon and Taiwan Secom

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

The idea behind Taiwan Hon Chuan and Taiwan Secom Co 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 Stocks Directory module to find actively traded stocks across global markets.