Correlation Between Central Reinsurance and CTBC Financial

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

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

Diversification Opportunities for Central Reinsurance and CTBC Financial

0.64

Correlation Coefficient

Central Reinsurance  CTBC Financial

Poor diversification

The 3 months correlation between Central and CTBC is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Central Reinsurance Corp 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 Central Reinsurance 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 Central Reinsurance Corp 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 Central Reinsurance i.e., Central Reinsurance and CTBC Financial go up and down completely randomly.

Pair Corralation between Central Reinsurance and CTBC Financial

Assuming the 90 days trading horizon Central Reinsurance Corp is expected to generate 1.05 times more return on investment than CTBC Financial. However, Central Reinsurance is 1.05 times more volatile than CTBC Financial Holding. It trades about 0.15 of its potential returns per unit of risk. CTBC Financial Holding is currently generating about 0.06 per unit of risk. If you would invest  2,585  in Central Reinsurance Corp on December 30, 2024 and sell it today you would earn a total of  185.00  from holding Central Reinsurance Corp or generate 7.16% return on investment over 90 days.

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

Central Reinsurance Corp  vs.  CTBC Financial Holding

Central Reinsurance Corp

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Central Reinsurance Corp are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Central Reinsurance may actually be approaching a critical reversion point that can send shares even higher in April 2025.

CTBC Financial Holding

Risk-Adjusted Performance

Insignificant

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

Pair Trading with Central Reinsurance and CTBC Financial

The main advantage of trading using opposite Central Reinsurance and CTBC Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Central Reinsurance 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 Central Reinsurance Corp 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.

Check out your portfolio center.

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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.