Correlation Between Taiwan Closed and China Fund

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

By analyzing existing cross correlation between Taiwan Closed and China Fund, you can compare the effects of market volatilities on Taiwan Closed and China Fund 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 Closed with a short position of China Fund. Check out your portfolio center. Please also check ongoing floating volatility patterns of Taiwan Closed and China Fund.

Diversification Opportunities for Taiwan Closed and China Fund

0.41

Correlation Coefficient

Taiwan Closed  China Fund

Very weak diversification

The 3 months correlation between Taiwan and China is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Closed and China Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Fund and Taiwan Closed 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 Closed are associated (or correlated) with China Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Fund has no effect on the direction of Taiwan Closed i.e., Taiwan Closed and China Fund go up and down completely randomly.

Pair Corralation between Taiwan Closed and China Fund

Considering the 90-day investment horizon Taiwan Closed is expected to generate 0.53 times more return on investment than China Fund. However, Taiwan Closed is 1.9 times less risky than China Fund. It trades about 0.21 of its potential returns per unit of risk. China Fund is currently generating about 0.02 per unit of risk. If you would invest  4,308  in Taiwan Closed on September 14, 2024 and sell it today you would earn a total of  205.00  from holding Taiwan Closed or generate 4.76% return on investment over 90 days.

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

Taiwan Closed  vs.  China Fund

Taiwan Closed

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Taiwan Closed are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of very healthy basic indicators, Taiwan Closed is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

China Fund

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in China Fund are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of very fragile technical indicators, China Fund displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Taiwan Closed and China Fund

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

The idea behind Taiwan Closed and China Fund 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..