Correlation Between Far EasTone and CTBC Financial

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

By analyzing existing cross correlation between Far EasTone Telecommunications and CTBC Financial Holding, you can compare the effects of market volatilities on Far EasTone and CTBC Financial 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 EasTone with a short position of CTBC Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Far EasTone and CTBC Financial.

Diversification Opportunities for Far EasTone and CTBC Financial

-0.17

Correlation Coefficient

Far EasTone  CTBC Financial

Good diversification

The 3 months correlation between Far and CTBC is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding Far EasTone Telecommunications and CTBC Financial Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CTBC Financial Holding and Far EasTone 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 EasTone Telecommunications are associated (or correlated) with CTBC Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CTBC Financial Holding has no effect on the direction of Far EasTone i.e., Far EasTone and CTBC Financial go up and down completely randomly.

Pair Corralation between Far EasTone and CTBC Financial

Assuming the 90 days trading horizon Far EasTone is expected to generate 1.89 times less return on investment than CTBC Financial. But when comparing it to its historical volatility, Far EasTone Telecommunications is 1.23 times less risky than CTBC Financial. It trades about 0.07 of its potential returns per unit of risk. CTBC Financial Holding is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  2,125  in CTBC Financial Holding on September 20, 2024 and sell it today you would earn a total of  1,815  from holding CTBC Financial Holding or generate 85.41% return on investment over 90 days.

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

Far EasTone Telecommunications  vs.  CTBC Financial Holding

Far EasTone Telecomm

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Far EasTone Telecommunications has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Far EasTone is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

CTBC Financial Holding

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in CTBC Financial Holding are ranked lower than 17 (%) 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.

Pair Trading with Far EasTone and CTBC Financial

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

The idea behind Far EasTone Telecommunications and CTBC Financial Holding 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.