Correlation Between Taiwan Paiho and Sports Gear

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

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

Diversification Opportunities for Taiwan Paiho and Sports Gear

0.77

Correlation Coefficient

Taiwan Paiho  Sports Gear

Poor diversification

The 3 months correlation between Taiwan and Sports is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Paiho and Sports Gear Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sports Gear and Taiwan Paiho 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 Paiho are associated (or correlated) with Sports Gear. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sports Gear has no effect on the direction of Taiwan Paiho i.e., Taiwan Paiho and Sports Gear go up and down completely randomly.

Pair Corralation between Taiwan Paiho and Sports Gear

Assuming the 90 days trading horizon Taiwan Paiho is expected to generate 1.14 times more return on investment than Sports Gear. However, Taiwan Paiho is 1.14 times more volatile than Sports Gear Co. It trades about 0.06 of its potential returns per unit of risk. Sports Gear Co is currently generating about 0.06 per unit of risk. If you would invest  4,711  in Taiwan Paiho on July 13, 2024 and sell it today you would earn a total of  2,979  from holding Taiwan Paiho or generate 63.23% return on investment over 90 days.

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

Taiwan Paiho  vs.  Sports Gear Co

Taiwan Paiho

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Taiwan Paiho are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Taiwan Paiho showed solid returns over the last few months and may actually be approaching a breakup point.

Sports Gear

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sports Gear Co are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Sports Gear showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Taiwan Paiho and Sports Gear

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

The idea behind Taiwan Paiho and Sports Gear Co 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 Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.