Correlation Between Taiwan Weighted and Wistron Information

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

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

Diversification Opportunities for Taiwan Weighted and Wistron Information

0.39

Correlation Coefficient

Taiwan Weighted  Wistron Information

Weak diversification

The 3 months correlation between Taiwan and Wistron is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Weighted and Wistron Information Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wistron Information 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 Wistron Information. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wistron Information has no effect on the direction of Taiwan Weighted i.e., Taiwan Weighted and Wistron Information go up and down completely randomly.

Pair Corralation between Taiwan Weighted and Wistron Information

Assuming the 90 days trading horizon Taiwan Weighted is expected to generate 0.49 times more return on investment than Wistron Information. However, Taiwan Weighted is 2.02 times less risky than Wistron Information. It trades about 0.06 of its potential returns per unit of risk. Wistron Information Technology is currently generating about -0.45 per unit of risk. If you would invest  2,327,325  in Taiwan Weighted on October 9, 2024 and sell it today you would earn a total of  27,446  from holding Taiwan Weighted or generate 1.18% return on investment over 90 days.

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

Taiwan Weighted  vs.  Wistron Information Technology

Pair Trading with Taiwan Weighted and Wistron Information

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

The idea behind Taiwan Weighted and Wistron Information Technology 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.