Correlation Between Bank of Kaohsiung and CTBC Financial

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

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

Diversification Opportunities for Bank of Kaohsiung and CTBC Financial

-0.49

Correlation Coefficient

Bank of Kaohsiung  CTBC Financial

Very good diversification

The 3 months correlation between Bank and CTBC is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding Bank of Kaohsiung 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 Bank of Kaohsiung 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 Bank of Kaohsiung 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 Bank of Kaohsiung i.e., Bank of Kaohsiung and CTBC Financial go up and down completely randomly.

Pair Corralation between Bank of Kaohsiung and CTBC Financial

Assuming the 90 days trading horizon Bank of Kaohsiung is expected to under-perform the CTBC Financial. But the stock apears to be less risky and, when comparing its historical volatility, Bank of Kaohsiung is 1.28 times less risky than CTBC Financial. The stock trades about -0.17 of its potential returns per unit of risk. The CTBC Financial Holding is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  3,900  in CTBC Financial Holding on October 4, 2024 and sell it today you would lose (30.00) from holding CTBC Financial Holding or give up 0.77% of portfolio value over 90 days.

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

Bank of Kaohsiung  vs.  CTBC Financial Holding

Bank of Kaohsiung

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bank of Kaohsiung has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Bank of Kaohsiung is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

CTBC Financial Holding

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in CTBC Financial Holding are ranked lower than 14 (%) 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 February 2025.

Pair Trading with Bank of Kaohsiung and CTBC Financial

The main advantage of trading using opposite Bank of Kaohsiung and CTBC Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank of Kaohsiung 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 Bank of Kaohsiung 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.