Correlation Between Taiwan Weighted and Lungyen Life

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Can any of the company-specific risk be diversified away by investing in both Taiwan Weighted and Lungyen Life 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 Lungyen Life into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Taiwan Weighted and Lungyen Life Service, you can compare the effects of market volatilities on Taiwan Weighted and Lungyen Life 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 Lungyen Life. Check out your portfolio center. Please also check ongoing floating volatility patterns of Taiwan Weighted and Lungyen Life.

Diversification Opportunities for Taiwan Weighted and Lungyen Life

TaiwanLungyenDiversified AwayTaiwanLungyenDiversified Away100%
0.02
  Correlation Coefficient

Significant diversification

The 3 months correlation between Taiwan and Lungyen is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Weighted and Lungyen Life Service in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lungyen Life Service 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 Lungyen Life. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lungyen Life Service has no effect on the direction of Taiwan Weighted i.e., Taiwan Weighted and Lungyen Life go up and down completely randomly.
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Pair Corralation between Taiwan Weighted and Lungyen Life

Assuming the 90 days trading horizon Taiwan Weighted is expected to generate 19.22 times less return on investment than Lungyen Life. But when comparing it to its historical volatility, Taiwan Weighted is 1.66 times less risky than Lungyen Life. It trades about 0.01 of its potential returns per unit of risk. Lungyen Life Service is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  4,565  in Lungyen Life Service on October 12, 2024 and sell it today you would earn a total of  705.00  from holding Lungyen Life Service or generate 15.44% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthInsignificant
Accuracy96.88%
ValuesDaily Returns

Taiwan Weighted  vs.  Lungyen Life Service

 Performance 
JavaScript chart by amCharts 3.21.15OctNovDec 05101520
JavaScript chart by amCharts 3.21.15TWII 5530
       Timeline  

Taiwan Weighted and Lungyen Life Volatility Contrast

   Predicted Return Density   
JavaScript chart by amCharts 3.21.15-3.13-2.34-1.56-0.770.00.771.572.373.163.96 0.10.20.30.4
JavaScript chart by amCharts 3.21.15TWII 5530
       Returns  

Pair Trading with Taiwan Weighted and Lungyen Life

The main advantage of trading using opposite Taiwan Weighted and Lungyen Life positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Taiwan Weighted position performs unexpectedly, Lungyen Life 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 Lungyen Life will offset losses from the drop in Lungyen Life's long position.
The idea behind Taiwan Weighted and Lungyen Life Service 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.

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