Correlation Between Taiwan Hon and Mercuries Life

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

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

Diversification Opportunities for Taiwan Hon and Mercuries Life

0.09

Correlation Coefficient

Taiwan Hon  Mercuries Life

Significant diversification

The 3 months correlation between Taiwan and Mercuries is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Hon Chuan and Mercuries Life Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mercuries Life Insurance and Taiwan Hon 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 Hon Chuan are associated (or correlated) with Mercuries Life. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mercuries Life Insurance has no effect on the direction of Taiwan Hon i.e., Taiwan Hon and Mercuries Life go up and down completely randomly.

Pair Corralation between Taiwan Hon and Mercuries Life

Assuming the 90 days trading horizon Taiwan Hon is expected to generate 1.98 times less return on investment than Mercuries Life. But when comparing it to its historical volatility, Taiwan Hon Chuan is 1.77 times less risky than Mercuries Life. It trades about 0.2 of its potential returns per unit of risk. Mercuries Life Insurance is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  504.00  in Mercuries Life Insurance on January 18, 2024 and sell it today you would earn a total of  110.00  from holding Mercuries Life Insurance or generate 21.83% return on investment over 90 days.

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

Taiwan Hon Chuan  vs.  Mercuries Life Insurance

Taiwan Hon Chuan

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Taiwan Hon Chuan are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Taiwan Hon showed solid returns over the last few months and may actually be approaching a breakup point.

Mercuries Life Insurance

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Mercuries Life Insurance are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Mercuries Life showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Taiwan Hon and Mercuries Life

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

The idea behind Taiwan Hon Chuan and Mercuries Life Insurance 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.

Check out your portfolio center.

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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.