Correlation Between Taiwan Weighted and Holy Stone

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

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

Diversification Opportunities for Taiwan Weighted and Holy Stone

-0.14

Correlation Coefficient

Taiwan Weighted  Holy Stone

Good diversification

The 3 months correlation between Taiwan and Holy is -0.14. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Weighted and Holy Stone Enterprise in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Holy Stone Enterprise 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 Holy Stone. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Holy Stone Enterprise has no effect on the direction of Taiwan Weighted i.e., Taiwan Weighted and Holy Stone go up and down completely randomly.

Pair Corralation between Taiwan Weighted and Holy Stone

Assuming the 90 days trading horizon Taiwan Weighted is expected to generate 1.14 times more return on investment than Holy Stone. However, Taiwan Weighted is 1.14 times more volatile than Holy Stone Enterprise. It trades about 0.08 of its potential returns per unit of risk. Holy Stone Enterprise is currently generating about -0.01 per unit of risk. If you would invest  1,522,112  in Taiwan Weighted on December 5, 2024 and sell it today you would earn a total of  737,576  from holding Taiwan Weighted or generate 48.46% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.75%
Values	Daily Returns

Taiwan Weighted  vs.  Holy Stone Enterprise

Pair Trading with Taiwan Weighted and Holy Stone

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

The idea behind Taiwan Weighted and Holy Stone Enterprise 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.