Correlation Between CTBC Financial and Chi Hua

Can any of the company-specific risk be diversified away by investing in both CTBC Financial and Chi Hua 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 CTBC Financial and Chi Hua into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between CTBC Financial Holding and Chi Hua Fitness, you can compare the effects of market volatilities on CTBC Financial and Chi Hua 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 CTBC Financial with a short position of Chi Hua. Check out your portfolio center. Please also check ongoing floating volatility patterns of CTBC Financial and Chi Hua.

Diversification Opportunities for CTBC Financial and Chi Hua

-0.71

Correlation Coefficient

CTBC Financial  Chi Hua

Pay attention - limited upside

The 3 months correlation between CTBC and Chi is -0.71. Overlapping area represents the amount of risk that can be diversified away by holding CTBC Financial Holding and Chi Hua Fitness in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chi Hua Fitness and CTBC Financial 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 CTBC Financial Holding are associated (or correlated) with Chi Hua. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chi Hua Fitness has no effect on the direction of CTBC Financial i.e., CTBC Financial and Chi Hua go up and down completely randomly.

Pair Corralation between CTBC Financial and Chi Hua

Assuming the 90 days trading horizon CTBC Financial is expected to generate 4.13 times less return on investment than Chi Hua. But when comparing it to its historical volatility, CTBC Financial Holding is 13.27 times less risky than Chi Hua. It trades about 0.1 of its potential returns per unit of risk. Chi Hua Fitness is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  6,918  in Chi Hua Fitness on September 9, 2024 and sell it today you would lose (3,178) from holding Chi Hua Fitness or give up 45.94% of portfolio value over 90 days.

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

CTBC Financial Holding  vs.  Chi Hua Fitness

CTBC Financial Holding

Risk-Adjusted Performance

19 of 100

Solid

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

Chi Hua Fitness

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Chi Hua Fitness 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.

Pair Trading with CTBC Financial and Chi Hua

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

The idea behind CTBC Financial Holding and Chi Hua Fitness 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.