Correlation Between CTBC Financial and Song Shang

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

Diversification Opportunities for CTBC Financial and Song Shang

0.38

Correlation Coefficient

CTBC Financial  Song Shang

Weak diversification

The 3 months correlation between CTBC and Song is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding CTBC Financial Holding and Song Shang Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Song Shang Electronics 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 Song Shang. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Song Shang Electronics has no effect on the direction of CTBC Financial i.e., CTBC Financial and Song Shang go up and down completely randomly.

Pair Corralation between CTBC Financial and Song Shang

Assuming the 90 days trading horizon CTBC Financial is expected to generate 4.92 times less return on investment than Song Shang. But when comparing it to its historical volatility, CTBC Financial Holding is 10.39 times less risky than Song Shang. It trades about 0.35 of its potential returns per unit of risk. Song Shang Electronics is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  2,630  in Song Shang Electronics on December 22, 2024 and sell it today you would earn a total of  425.00  from holding Song Shang Electronics or generate 16.16% return on investment over 90 days.

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

CTBC Financial Holding  vs.  Song Shang Electronics

CTBC Financial Holding

Risk-Adjusted Performance

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in CTBC Financial Holding are ranked lower than 27 (%) 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.

Song Shang Electronics

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Song Shang Electronics are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Song Shang showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with CTBC Financial and Song Shang

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

The idea behind CTBC Financial Holding and Song Shang Electronics 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 Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.