Correlation Between CTBC USD and CTBC TIP

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

By analyzing existing cross correlation between CTBC USD Corporate and CTBC TIP Customized, you can compare the effects of market volatilities on CTBC USD and CTBC TIP 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 USD with a short position of CTBC TIP. Check out your portfolio center. Please also check ongoing floating volatility patterns of CTBC USD and CTBC TIP.

Diversification Opportunities for CTBC USD and CTBC TIP

0.49

Correlation Coefficient

CTBC USD  CTBC TIP

Very weak diversification

The 3 months correlation between CTBC and CTBC is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding CTBC USD Corporate and CTBC TIP Customized in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CTBC TIP Customized and CTBC USD 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 USD Corporate are associated (or correlated) with CTBC TIP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CTBC TIP Customized has no effect on the direction of CTBC USD i.e., CTBC USD and CTBC TIP go up and down completely randomly.

Pair Corralation between CTBC USD and CTBC TIP

Assuming the 90 days trading horizon CTBC USD Corporate is expected to generate 0.76 times more return on investment than CTBC TIP. However, CTBC USD Corporate is 1.32 times less risky than CTBC TIP. It trades about 0.12 of its potential returns per unit of risk. CTBC TIP Customized is currently generating about 0.05 per unit of risk. If you would invest  3,475  in CTBC USD Corporate on December 21, 2024 and sell it today you would earn a total of  137.00  from holding CTBC USD Corporate or generate 3.94% return on investment over 90 days.

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

CTBC USD Corporate  vs.  CTBC TIP Customized

CTBC USD Corporate

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in CTBC USD Corporate are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, CTBC USD is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

CTBC TIP Customized

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in CTBC TIP Customized are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, CTBC TIP is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with CTBC USD and CTBC TIP

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

The idea behind CTBC USD Corporate and CTBC TIP Customized 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.