Correlation Between Taiwan Weighted and Landis Taipei

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

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

Diversification Opportunities for Taiwan Weighted and Landis Taipei

0.35

Correlation Coefficient

Taiwan Weighted  Landis Taipei

Weak diversification

The 3 months correlation between Taiwan and Landis is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Weighted and Landis Taipei Hotel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Landis Taipei Hotel 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 Landis Taipei. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Landis Taipei Hotel has no effect on the direction of Taiwan Weighted i.e., Taiwan Weighted and Landis Taipei go up and down completely randomly.

Pair Corralation between Taiwan Weighted and Landis Taipei

Assuming the 90 days trading horizon Taiwan Weighted is expected to under-perform the Landis Taipei. But the index apears to be less risky and, when comparing its historical volatility, Taiwan Weighted is 1.57 times less risky than Landis Taipei. The index trades about -0.1 of its potential returns per unit of risk. The Landis Taipei Hotel is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  1,805  in Landis Taipei Hotel on December 29, 2024 and sell it today you would lose (20.00) from holding Landis Taipei Hotel or give up 1.11% of portfolio value over 90 days.

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

Taiwan Weighted  vs.  Landis Taipei Hotel

Pair Trading with Taiwan Weighted and Landis Taipei

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

The idea behind Taiwan Weighted and Landis Taipei Hotel 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.