Correlation Between CTBC Financial and Taiwan Cement

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

Diversification Opportunities for CTBC Financial and Taiwan Cement

-0.8

Correlation Coefficient

CTBC Financial  Taiwan Cement

Pay attention - limited upside

The 3 months correlation between CTBC and Taiwan is -0.8. Overlapping area represents the amount of risk that can be diversified away by holding CTBC Financial Holding and Taiwan Cement Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Taiwan Cement Corp 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 Taiwan Cement. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Taiwan Cement Corp has no effect on the direction of CTBC Financial i.e., CTBC Financial and Taiwan Cement go up and down completely randomly.

Pair Corralation between CTBC Financial and Taiwan Cement

Assuming the 90 days trading horizon CTBC Financial Holding is expected to generate 1.07 times more return on investment than Taiwan Cement. However, CTBC Financial is 1.07 times more volatile than Taiwan Cement Corp. It trades about 0.33 of its potential returns per unit of risk. Taiwan Cement Corp is currently generating about -0.16 per unit of risk. If you would invest  6,040  in CTBC Financial Holding on September 27, 2024 and sell it today you would earn a total of  180.00  from holding CTBC Financial Holding or generate 2.98% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

CTBC Financial Holding  vs.  Taiwan Cement Corp

CTBC Financial Holding

Risk-Adjusted Performance

26 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in CTBC Financial Holding are ranked lower than 26 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, CTBC Financial is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Taiwan Cement Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Taiwan Cement Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Taiwan Cement is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with CTBC Financial and Taiwan Cement

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

The idea behind CTBC Financial Holding and Taiwan Cement Corp 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.