Correlation Between CTBC Financial and TMP Steel

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

Diversification Opportunities for CTBC Financial and TMP Steel

-0.84

Correlation Coefficient

CTBC Financial  TMP Steel

Pay attention - limited upside

The 3 months correlation between CTBC and TMP is -0.84. Overlapping area represents the amount of risk that can be diversified away by holding CTBC Financial Holding and TMP Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TMP Steel 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 TMP Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TMP Steel has no effect on the direction of CTBC Financial i.e., CTBC Financial and TMP Steel go up and down completely randomly.

Pair Corralation between CTBC Financial and TMP Steel

Assuming the 90 days trading horizon CTBC Financial Holding is expected to generate 1.41 times more return on investment than TMP Steel. However, CTBC Financial is 1.41 times more volatile than TMP Steel. It trades about 0.05 of its potential returns per unit of risk. TMP Steel is currently generating about -0.35 per unit of risk. If you would invest  3,905  in CTBC Financial Holding on October 9, 2024 and sell it today you would earn a total of  35.00  from holding CTBC Financial Holding or generate 0.9% return on investment over 90 days.

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

CTBC Financial Holding  vs.  TMP Steel

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 showed solid returns over the last few months and may actually be approaching a breakup point.

TMP Steel

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days TMP Steel has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Pair Trading with CTBC Financial and TMP Steel

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

The idea behind CTBC Financial Holding and TMP Steel 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..