Correlation Between CTBC Financial and Chung Hung

Can any of the company-specific risk be diversified away by investing in both CTBC Financial and Chung Hung 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 Chung Hung 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 Chung Hung Steel, you can compare the effects of market volatilities on CTBC Financial and Chung Hung 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 Chung Hung. Check out your portfolio center. Please also check ongoing floating volatility patterns of CTBC Financial and Chung Hung.

Diversification Opportunities for CTBC Financial and Chung Hung

0.61

Correlation Coefficient

CTBC Financial  Chung Hung

Poor diversification

The 3 months correlation between CTBC and Chung is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding CTBC Financial Holding and Chung Hung Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chung Hung Steel 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 Chung Hung. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chung Hung Steel has no effect on the direction of CTBC Financial i.e., CTBC Financial and Chung Hung go up and down completely randomly.

Pair Corralation between CTBC Financial and Chung Hung

Assuming the 90 days trading horizon CTBC Financial Holding is expected to generate 0.5 times more return on investment than Chung Hung. However, CTBC Financial Holding is 2.02 times less risky than Chung Hung. It trades about 0.19 of its potential returns per unit of risk. Chung Hung Steel is currently generating about 0.04 per unit of risk. If you would invest  3,265  in CTBC Financial Holding on August 30, 2024 and sell it today you would earn a total of  505.00  from holding CTBC Financial Holding or generate 15.47% return on investment over 90 days.

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

CTBC Financial Holding  vs.  Chung Hung Steel

CTBC Financial Holding

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in CTBC Financial Holding are ranked lower than 15 (%) 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.

Chung Hung Steel

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Chung Hung Steel are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Chung Hung may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with CTBC Financial and Chung Hung

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

The idea behind CTBC Financial Holding and Chung Hung Steel 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.