Correlation Between MediaTek and CTBC Financial

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

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

Diversification Opportunities for MediaTek and CTBC Financial

0.79

Correlation Coefficient

MediaTek  CTBC Financial

Poor diversification

The 3 months correlation between MediaTek and CTBC is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding MediaTek and CTBC Financial Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CTBC Financial Holding and MediaTek 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 MediaTek are associated (or correlated) with CTBC Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CTBC Financial Holding has no effect on the direction of MediaTek i.e., MediaTek and CTBC Financial go up and down completely randomly.

Pair Corralation between MediaTek and CTBC Financial

Assuming the 90 days trading horizon MediaTek is expected to generate 1.56 times more return on investment than CTBC Financial. However, MediaTek is 1.56 times more volatile than CTBC Financial Holding. It trades about 0.16 of its potential returns per unit of risk. CTBC Financial Holding is currently generating about 0.09 per unit of risk. If you would invest  131,000  in MediaTek on September 23, 2024 and sell it today you would earn a total of  8,000  from holding MediaTek or generate 6.11% return on investment over 90 days.

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

MediaTek  vs.  CTBC Financial Holding

MediaTek

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in MediaTek are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, MediaTek showed solid returns over the last few months and may actually be approaching a breakup point.

CTBC Financial Holding

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in CTBC Financial Holding are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, CTBC Financial may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with MediaTek and CTBC Financial

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

The idea behind MediaTek and CTBC Financial Holding 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.