Correlation Between LARGAN Precision and Taiwan Hon

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

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

Diversification Opportunities for LARGAN Precision and Taiwan Hon

-0.67

Correlation Coefficient

LARGAN Precision  Taiwan Hon

Excellent diversification

The 3 months correlation between LARGAN and Taiwan is -0.67. Overlapping area represents the amount of risk that can be diversified away by holding LARGAN Precision Co and Taiwan Hon Chuan in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Taiwan Hon Chuan and LARGAN Precision 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 LARGAN Precision Co are associated (or correlated) with Taiwan Hon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Taiwan Hon Chuan has no effect on the direction of LARGAN Precision i.e., LARGAN Precision and Taiwan Hon go up and down completely randomly.

Pair Corralation between LARGAN Precision and Taiwan Hon

Assuming the 90 days trading horizon LARGAN Precision Co is expected to under-perform the Taiwan Hon. But the stock apears to be less risky and, when comparing its historical volatility, LARGAN Precision Co is 1.01 times less risky than Taiwan Hon. The stock trades about -0.37 of its potential returns per unit of risk. The Taiwan Hon Chuan is currently generating about 0.27 of returns per unit of risk over similar time horizon. If you would invest  14,750  in Taiwan Hon Chuan on February 2, 2024 and sell it today you would earn a total of  1,500  from holding Taiwan Hon Chuan or generate 10.17% return on investment over 90 days.

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

LARGAN Precision Co  vs.  Taiwan Hon Chuan

LARGAN Precision

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days LARGAN Precision Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Taiwan Hon Chuan

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Taiwan Hon Chuan are ranked lower than 17 (%) 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.

Pair Trading with LARGAN Precision and Taiwan Hon

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

The idea behind LARGAN Precision Co and Taiwan Hon Chuan 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.