Correlation Between Taiwan Weighted and Gordon Auto

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

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

Diversification Opportunities for Taiwan Weighted and Gordon Auto

-0.71

Correlation Coefficient

Taiwan Weighted  Gordon Auto

Pay attention - limited upside

The 3 months correlation between Taiwan and Gordon is -0.71. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Weighted and Gordon Auto Body in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gordon Auto Body and Taiwan Weighted 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 Weighted are associated (or correlated) with Gordon Auto. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gordon Auto Body has no effect on the direction of Taiwan Weighted i.e., Taiwan Weighted and Gordon Auto go up and down completely randomly.

Pair Corralation between Taiwan Weighted and Gordon Auto

Assuming the 90 days trading horizon Taiwan Weighted is expected to under-perform the Gordon Auto. But the index apears to be less risky and, when comparing its historical volatility, Taiwan Weighted is 2.1 times less risky than Gordon Auto. The index trades about -0.09 of its potential returns per unit of risk. The Gordon Auto Body is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  3,805  in Gordon Auto Body on December 31, 2024 and sell it today you would earn a total of  400.00  from holding Gordon Auto Body or generate 10.51% return on investment over 90 days.

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

Taiwan Weighted  vs.  Gordon Auto Body

Pair Trading with Taiwan Weighted and Gordon Auto

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

The idea behind Taiwan Weighted and Gordon Auto Body 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.