Correlation Between China Bills and Yuanta Financial

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

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

Diversification Opportunities for China Bills and Yuanta Financial

0.55

Correlation Coefficient

China Bills  Yuanta Financial

Very weak diversification

The 3 months correlation between China and Yuanta is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding China Bills Finance and Yuanta Financial Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Yuanta Financial Holdings and China Bills 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 China Bills Finance are associated (or correlated) with Yuanta Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Yuanta Financial Holdings has no effect on the direction of China Bills i.e., China Bills and Yuanta Financial go up and down completely randomly.

Pair Corralation between China Bills and Yuanta Financial

Assuming the 90 days trading horizon China Bills is expected to generate 4.64 times less return on investment than Yuanta Financial. But when comparing it to its historical volatility, China Bills Finance is 2.75 times less risky than Yuanta Financial. It trades about 0.14 of its potential returns per unit of risk. Yuanta Financial Holdings is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  3,280  in Yuanta Financial Holdings on September 19, 2024 and sell it today you would earn a total of  205.00  from holding Yuanta Financial Holdings or generate 6.25% return on investment over 90 days.

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

China Bills Finance  vs.  Yuanta Financial Holdings

China Bills Finance

Risk-Adjusted Performance

4 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in China Bills Finance are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, China Bills is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Yuanta Financial Holdings

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Yuanta Financial Holdings are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Yuanta Financial may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with China Bills and Yuanta Financial

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

The idea behind China Bills Finance and Yuanta Financial Holdings 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.