Correlation Between CTBC TIP and CTBC Treasury

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

By analyzing existing cross correlation between CTBC TIP Customized and CTBC Treasury 20, you can compare the effects of market volatilities on CTBC TIP and CTBC Treasury 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 TIP with a short position of CTBC Treasury. Check out your portfolio center. Please also check ongoing floating volatility patterns of CTBC TIP and CTBC Treasury.

Diversification Opportunities for CTBC TIP and CTBC Treasury

0.15

Correlation Coefficient

CTBC TIP  CTBC Treasury

Average diversification

The 3 months correlation between CTBC and CTBC is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding CTBC TIP Customized and CTBC Treasury 20 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CTBC Treasury 20 and CTBC TIP 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 TIP Customized are associated (or correlated) with CTBC Treasury. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CTBC Treasury 20 has no effect on the direction of CTBC TIP i.e., CTBC TIP and CTBC Treasury go up and down completely randomly.

Pair Corralation between CTBC TIP and CTBC Treasury

Assuming the 90 days trading horizon CTBC TIP Customized is expected to under-perform the CTBC Treasury. In addition to that, CTBC TIP is 1.19 times more volatile than CTBC Treasury 20. It trades about -0.03 of its total potential returns per unit of risk. CTBC Treasury 20 is currently generating about -0.01 per unit of volatility. If you would invest  2,902  in CTBC Treasury 20 on October 24, 2024 and sell it today you would lose (8.00) from holding CTBC Treasury 20 or give up 0.28% of portfolio value over 90 days.

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

CTBC TIP Customized  vs.  CTBC Treasury 20

CTBC TIP Customized

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CTBC TIP Customized has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, CTBC TIP is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

CTBC Treasury 20

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CTBC Treasury 20 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, CTBC Treasury is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with CTBC TIP and CTBC Treasury

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

The idea behind CTBC TIP Customized and CTBC Treasury 20 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.