Correlation Between CTBC Financial and Tacheng Real

Can any of the company-specific risk be diversified away by investing in both CTBC Financial and Tacheng Real 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 Tacheng Real 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 Tacheng Real Estate, you can compare the effects of market volatilities on CTBC Financial and Tacheng Real 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 Tacheng Real. Check out your portfolio center. Please also check ongoing floating volatility patterns of CTBC Financial and Tacheng Real.

Diversification Opportunities for CTBC Financial and Tacheng Real

0.72

Correlation Coefficient

CTBC Financial  Tacheng Real

Poor diversification

The 3 months correlation between CTBC and Tacheng is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding CTBC Financial Holding and Tacheng Real Estate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tacheng Real Estate 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 Tacheng Real. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tacheng Real Estate has no effect on the direction of CTBC Financial i.e., CTBC Financial and Tacheng Real go up and down completely randomly.

Pair Corralation between CTBC Financial and Tacheng Real

Assuming the 90 days trading horizon CTBC Financial is expected to generate 1.15 times less return on investment than Tacheng Real. But when comparing it to its historical volatility, CTBC Financial Holding is 1.7 times less risky than Tacheng Real. It trades about 0.1 of its potential returns per unit of risk. Tacheng Real Estate is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  2,263  in Tacheng Real Estate on October 4, 2024 and sell it today you would earn a total of  1,842  from holding Tacheng Real Estate or generate 81.4% 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.  Tacheng Real Estate

CTBC Financial Holding

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in CTBC Financial Holding are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, CTBC Financial showed solid returns over the last few months and may actually be approaching a breakup point.

Tacheng Real Estate

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Tacheng Real Estate are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Tacheng Real may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with CTBC Financial and Tacheng Real

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

The idea behind CTBC Financial Holding and Tacheng Real Estate 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.