Correlation Between Taiwan Weighted and STARLUX Airlines

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

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

Diversification Opportunities for Taiwan Weighted and STARLUX Airlines

0.21

Correlation Coefficient

Taiwan Weighted  STARLUX Airlines

Modest diversification

The 3 months correlation between Taiwan and STARLUX is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Weighted and STARLUX Airlines Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on STARLUX Airlines 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 STARLUX Airlines. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of STARLUX Airlines has no effect on the direction of Taiwan Weighted i.e., Taiwan Weighted and STARLUX Airlines go up and down completely randomly.

Pair Corralation between Taiwan Weighted and STARLUX Airlines

Assuming the 90 days trading horizon Taiwan Weighted is expected to generate 0.6 times more return on investment than STARLUX Airlines. However, Taiwan Weighted is 1.67 times less risky than STARLUX Airlines. It trades about 0.09 of its potential returns per unit of risk. STARLUX Airlines Co is currently generating about 0.02 per unit of risk. If you would invest  2,185,008  in Taiwan Weighted on September 16, 2024 and sell it today you would earn a total of  117,040  from holding Taiwan Weighted or generate 5.36% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	96.83%
Values	Daily Returns

Taiwan Weighted  vs.  STARLUX Airlines Co

Pair Trading with Taiwan Weighted and STARLUX Airlines

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

The idea behind Taiwan Weighted and STARLUX Airlines 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.