Correlation Between Hua Nan and CTBC Financial
Can any of the company-specific risk be diversified away by investing in both Hua Nan 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 Hua Nan and CTBC Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Hua Nan Financial and CTBC Financial Holding, you can compare the effects of market volatilities on Hua Nan 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 Hua Nan with a short position of CTBC Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hua Nan and CTBC Financial.
Diversification Opportunities for Hua Nan and CTBC Financial
0.66 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Hua and CTBC is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Hua Nan Financial 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 Hua Nan 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 Hua Nan Financial 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 Hua Nan i.e., Hua Nan and CTBC Financial go up and down completely randomly.
Pair Corralation between Hua Nan and CTBC Financial
Assuming the 90 days trading horizon Hua Nan Financial is expected to generate 10.37 times more return on investment than CTBC Financial. However, Hua Nan is 10.37 times more volatile than CTBC Financial Holding. It trades about 0.4 of its potential returns per unit of risk. CTBC Financial Holding is currently generating about 0.21 per unit of risk. If you would invest 2,630 in Hua Nan Financial on November 4, 2024 and sell it today you would earn a total of 170.00 from holding Hua Nan Financial or generate 6.46% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Hua Nan Financial vs. CTBC Financial Holding
Performance |
| Timeline |
| Hua Nan Financial |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Good
| CTBC Financial Holding |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Strong
Hua Nan and CTBC Financial Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Hua Nan and CTBC Financial
The main advantage of trading using opposite Hua Nan and CTBC Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Hua Nan 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 Hua Nan Financial 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.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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.
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