Correlation Between China Steel and CTBC Financial
Can any of the company-specific risk be diversified away by investing in both China Steel 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 China Steel and CTBC Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between China Steel Chemical and CTBC Financial Holding, you can compare the effects of market volatilities on China Steel 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 China Steel with a short position of CTBC Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Steel and CTBC Financial.
Diversification Opportunities for China Steel and CTBC Financial
-0.23 | Correlation Coefficient |
Very good diversification
The 3 months correlation between China and CTBC is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding China Steel Chemical 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 China Steel 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 China Steel Chemical 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 China Steel i.e., China Steel and CTBC Financial go up and down completely randomly.
Pair Corralation between China Steel and CTBC Financial
Assuming the 90 days trading horizon China Steel Chemical is expected to under-perform the CTBC Financial. But the stock apears to be less risky and, when comparing its historical volatility, China Steel Chemical is 1.27 times less risky than CTBC Financial. The stock trades about -0.09 of its potential returns per unit of risk. The CTBC Financial Holding is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest 3,570 in CTBC Financial Holding on September 2, 2024 and sell it today you would earn a total of 170.00 from holding CTBC Financial Holding or generate 4.76% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
China Steel Chemical vs. CTBC Financial Holding
Performance |
| Timeline |
| China Steel Chemical |
| CTBC Financial Holding |
China Steel and CTBC Financial Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with China Steel and CTBC Financial
The main advantage of trading using opposite China Steel and CTBC Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China Steel 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.| China Steel vs. Basso Industry Corp | China Steel vs. Chung Hsin Electric Machinery | China Steel vs. TYC Brother Industrial | China Steel vs. TECO Electric Machinery |
| CTBC Financial vs. Central Reinsurance Corp | CTBC Financial vs. Huaku Development Co | CTBC Financial vs. Fubon Financial Holding |
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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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