Correlation Between Great China and CTBC Financial

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

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

Diversification Opportunities for Great China and CTBC Financial

0.77

Correlation Coefficient

Great China  CTBC Financial

Poor diversification

The 3 months correlation between Great and CTBC is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Great China Metal 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 Great China 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 Great China Metal 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 Great China i.e., Great China and CTBC Financial go up and down completely randomly.

Pair Corralation between Great China and CTBC Financial

Assuming the 90 days trading horizon Great China Metal is expected to generate 3.15 times more return on investment than CTBC Financial. However, Great China is 3.15 times more volatile than CTBC Financial Holding. It trades about 0.16 of its potential returns per unit of risk. CTBC Financial Holding is currently generating about 0.35 per unit of risk. If you would invest  2,285  in Great China Metal on December 22, 2024 and sell it today you would earn a total of  110.00  from holding Great China Metal or generate 4.81% return on investment over 90 days.

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

Great China Metal  vs.  CTBC Financial Holding

Great China Metal

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Great China Metal are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Great China 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

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 current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Great China and CTBC Financial

The main advantage of trading using opposite Great China and CTBC Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Great China 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 Great China Metal 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.