Correlation Between Taiwan Tea and Leofoo Development

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

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

Diversification Opportunities for Taiwan Tea and Leofoo Development

0.83

Correlation Coefficient

Taiwan Tea  Leofoo Development

Very poor diversification

The 3 months correlation between Taiwan and Leofoo is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Tea Corp and Leofoo Development Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Leofoo Development and Taiwan Tea 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 Tea Corp are associated (or correlated) with Leofoo Development. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Leofoo Development has no effect on the direction of Taiwan Tea i.e., Taiwan Tea and Leofoo Development go up and down completely randomly.

Pair Corralation between Taiwan Tea and Leofoo Development

Assuming the 90 days trading horizon Taiwan Tea is expected to generate 6.56 times less return on investment than Leofoo Development. But when comparing it to its historical volatility, Taiwan Tea Corp is 1.12 times less risky than Leofoo Development. It trades about 0.03 of its potential returns per unit of risk. Leofoo Development Co is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  1,695  in Leofoo Development Co on February 28, 2024 and sell it today you would earn a total of  410.00  from holding Leofoo Development Co or generate 24.19% return on investment over 90 days.

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

Taiwan Tea Corp  vs.  Leofoo Development Co

Taiwan Tea Corp

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Taiwan Tea Corp are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Taiwan Tea is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Leofoo Development

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Leofoo Development Co are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Leofoo Development showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Taiwan Tea and Leofoo Development

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

The idea behind Taiwan Tea Corp and Leofoo Development 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.

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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.