Correlation Between Taiwan Weighted and Hsinli Chemical

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

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

Diversification Opportunities for Taiwan Weighted and Hsinli Chemical

0.53

Correlation Coefficient

Taiwan Weighted  Hsinli Chemical

Very weak diversification

The 3 months correlation between Taiwan and Hsinli is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Weighted and Hsinli Chemical Industrial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hsinli Chemical Indu 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 Hsinli Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hsinli Chemical Indu has no effect on the direction of Taiwan Weighted i.e., Taiwan Weighted and Hsinli Chemical go up and down completely randomly.

Pair Corralation between Taiwan Weighted and Hsinli Chemical

Assuming the 90 days trading horizon Taiwan Weighted is expected to generate 3.31 times less return on investment than Hsinli Chemical. But when comparing it to its historical volatility, Taiwan Weighted is 3.95 times less risky than Hsinli Chemical. It trades about 0.07 of its potential returns per unit of risk. Hsinli Chemical Industrial is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  4,625  in Hsinli Chemical Industrial on September 15, 2024 and sell it today you would earn a total of  155.00  from holding Hsinli Chemical Industrial or generate 3.35% return on investment over 90 days.

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

Taiwan Weighted  vs.  Hsinli Chemical Industrial

Pair Trading with Taiwan Weighted and Hsinli Chemical

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

The idea behind Taiwan Weighted and Hsinli Chemical Industrial 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.

Check out your portfolio center.

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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.