Correlation Between CTBC Financial and Hua Nan

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

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

Diversification Opportunities for CTBC Financial and Hua Nan

0.68

Correlation Coefficient

CTBC Financial  Hua Nan

Poor diversification

The 3 months correlation between CTBC and Hua is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding CTBC Financial Holding and Hua Nan Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hua Nan Financial and CTBC Financial 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 Financial Holding are associated (or correlated) with Hua Nan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hua Nan Financial has no effect on the direction of CTBC Financial i.e., CTBC Financial and Hua Nan go up and down completely randomly.

Pair Corralation between CTBC Financial and Hua Nan

Assuming the 90 days trading horizon CTBC Financial Holding is expected to generate 1.14 times more return on investment than Hua Nan. However, CTBC Financial is 1.14 times more volatile than Hua Nan Financial. It trades about 0.31 of its potential returns per unit of risk. Hua Nan Financial is currently generating about -0.11 per unit of risk. If you would invest  3,900  in CTBC Financial Holding on December 5, 2024 and sell it today you would earn a total of  200.00  from holding CTBC Financial Holding or generate 5.13% return on investment over 90 days.

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

CTBC Financial Holding  vs.  Hua Nan Financial

CTBC Financial Holding

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in CTBC Financial Holding are ranked lower than 8 (%) 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.

Hua Nan Financial

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Hua Nan Financial are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Hua Nan 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 CTBC Financial and Hua Nan

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

The idea behind CTBC Financial Holding and Hua Nan Financial 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.