Correlation Between Taiwan Weighted and San Fang

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

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

Diversification Opportunities for Taiwan Weighted and San Fang

0.62

Correlation Coefficient

Taiwan Weighted  San Fang

Poor diversification

The 3 months correlation between Taiwan and San is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Weighted and San Fang Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on San Fang Chemical 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 San Fang. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of San Fang Chemical has no effect on the direction of Taiwan Weighted i.e., Taiwan Weighted and San Fang go up and down completely randomly.

Pair Corralation between Taiwan Weighted and San Fang

Assuming the 90 days trading horizon Taiwan Weighted is expected to generate 1.61 times less return on investment than San Fang. But when comparing it to its historical volatility, Taiwan Weighted is 1.91 times less risky than San Fang. It trades about 0.09 of its potential returns per unit of risk. San Fang Chemical is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  2,115  in San Fang Chemical on September 3, 2024 and sell it today you would earn a total of  1,905  from holding San Fang Chemical or generate 90.07% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.75%
Values	Daily Returns

Taiwan Weighted  vs.  San Fang Chemical

Pair Trading with Taiwan Weighted and San Fang

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

The idea behind Taiwan Weighted and San Fang Chemical 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .