Correlation Between Taiwan Weighted and Ares International

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

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

Diversification Opportunities for Taiwan Weighted and Ares International

0.18

Correlation Coefficient

Taiwan Weighted  Ares International

Average diversification

The 3 months correlation between Taiwan and Ares is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Weighted and Ares International Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ares International Corp 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 Ares International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ares International Corp has no effect on the direction of Taiwan Weighted i.e., Taiwan Weighted and Ares International go up and down completely randomly.

Pair Corralation between Taiwan Weighted and Ares International

Assuming the 90 days trading horizon Taiwan Weighted is expected to generate 10.69 times less return on investment than Ares International. But when comparing it to its historical volatility, Taiwan Weighted is 4.39 times less risky than Ares International. It trades about 0.11 of its potential returns per unit of risk. Ares International Corp is currently generating about 0.27 of returns per unit of risk over similar time horizon. If you would invest  4,640  in Ares International Corp on September 17, 2024 and sell it today you would earn a total of  1,110  from holding Ares International Corp or generate 23.92% return on investment over 90 days.

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

Taiwan Weighted  vs.  Ares International Corp

Pair Trading with Taiwan Weighted and Ares International

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

The idea behind Taiwan Weighted and Ares International 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.