Correlation Between Taiwan Weighted and DingZing Advanced

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

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

Diversification Opportunities for Taiwan Weighted and DingZing Advanced

-0.3

Correlation Coefficient

Taiwan Weighted  DingZing Advanced

Very good diversification

The 3 months correlation between Taiwan and DingZing is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Weighted and DingZing Advanced Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DingZing Advanced 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 DingZing Advanced. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DingZing Advanced has no effect on the direction of Taiwan Weighted i.e., Taiwan Weighted and DingZing Advanced go up and down completely randomly.

Pair Corralation between Taiwan Weighted and DingZing Advanced

Assuming the 90 days trading horizon Taiwan Weighted is expected to generate 2.87 times less return on investment than DingZing Advanced. But when comparing it to its historical volatility, Taiwan Weighted is 2.74 times less risky than DingZing Advanced. It trades about 0.01 of its potential returns per unit of risk. DingZing Advanced Materials is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  14,600  in DingZing Advanced Materials on September 27, 2024 and sell it today you would lose (100.00) from holding DingZing Advanced Materials or give up 0.68% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	97.67%
Values	Daily Returns

Taiwan Weighted  vs.  DingZing Advanced Materials

Pair Trading with Taiwan Weighted and DingZing Advanced

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

The idea behind Taiwan Weighted and DingZing Advanced Materials 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..