Correlation Between AMS Small and Taiwan Weighted

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

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

Diversification Opportunities for AMS Small and Taiwan Weighted

-0.42

Correlation Coefficient

AMS Small  Taiwan Weighted

Very good diversification

The 3 months correlation between AMS and Taiwan is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding AMS Small Cap and Taiwan Weighted in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Taiwan Weighted and AMS Small 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 AMS Small Cap are associated (or correlated) with Taiwan Weighted. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Taiwan Weighted has no effect on the direction of AMS Small i.e., AMS Small and Taiwan Weighted go up and down completely randomly.

Pair Corralation between AMS Small and Taiwan Weighted

Assuming the 90 days trading horizon AMS Small Cap is expected to generate 0.74 times more return on investment than Taiwan Weighted. However, AMS Small Cap is 1.35 times less risky than Taiwan Weighted. It trades about 0.03 of its potential returns per unit of risk. Taiwan Weighted is currently generating about -0.13 per unit of risk. If you would invest  130,326  in AMS Small Cap on January 4, 2025 and sell it today you would earn a total of  1,816  from holding AMS Small Cap or generate 1.39% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	87.5%
Values	Daily Returns

AMS Small Cap  vs.  Taiwan Weighted

Pair Trading with AMS Small and Taiwan Weighted

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

The idea behind AMS Small Cap and Taiwan Weighted 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.