Correlation Between Far Eastern and CSBC Corp

Can any of the company-specific risk be diversified away by investing in both Far Eastern and CSBC Corp 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 Far Eastern and CSBC Corp into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Far Eastern Department and CSBC Corp Taiwan, you can compare the effects of market volatilities on Far Eastern and CSBC Corp 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 Far Eastern with a short position of CSBC Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Far Eastern and CSBC Corp.

Diversification Opportunities for Far Eastern and CSBC Corp

0.92

Correlation Coefficient

Far Eastern  CSBC Corp

Almost no diversification

The 3 months correlation between Far and CSBC is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Far Eastern Department and CSBC Corp Taiwan in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CSBC Corp Taiwan and Far Eastern 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 Far Eastern Department are associated (or correlated) with CSBC Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CSBC Corp Taiwan has no effect on the direction of Far Eastern i.e., Far Eastern and CSBC Corp go up and down completely randomly.

Pair Corralation between Far Eastern and CSBC Corp

Assuming the 90 days trading horizon Far Eastern is expected to generate 1.25 times less return on investment than CSBC Corp. But when comparing it to its historical volatility, Far Eastern Department is 1.04 times less risky than CSBC Corp. It trades about 0.13 of its potential returns per unit of risk. CSBC Corp Taiwan is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  1,530  in CSBC Corp Taiwan on December 28, 2024 and sell it today you would earn a total of  220.00  from holding CSBC Corp Taiwan or generate 14.38% return on investment over 90 days.

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

Far Eastern Department  vs.  CSBC Corp Taiwan

Far Eastern Department

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Far Eastern Department are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Far Eastern showed solid returns over the last few months and may actually be approaching a breakup point.

CSBC Corp Taiwan

Risk-Adjusted Performance

Good

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

Pair Trading with Far Eastern and CSBC Corp

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

The idea behind Far Eastern Department and CSBC Corp Taiwan 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..