Correlation Between CTBC Financial and LARGAN Precision
Can any of the company-specific risk be diversified away by investing in both CTBC Financial and LARGAN Precision 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 CTBC Financial and LARGAN Precision into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between CTBC Financial Holding and LARGAN Precision Co, you can compare the effects of market volatilities on CTBC Financial and LARGAN Precision 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 CTBC Financial with a short position of LARGAN Precision. Check out your portfolio center. Please also check ongoing floating volatility patterns of CTBC Financial and LARGAN Precision.
Diversification Opportunities for CTBC Financial and LARGAN Precision
0.91 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between CTBC and LARGAN is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding CTBC Financial Holding and LARGAN Precision Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LARGAN Precision and CTBC Financial 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 CTBC Financial Holding are associated (or correlated) with LARGAN Precision. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LARGAN Precision has no effect on the direction of CTBC Financial i.e., CTBC Financial and LARGAN Precision go up and down completely randomly.
Pair Corralation between CTBC Financial and LARGAN Precision
Assuming the 90 days trading horizon CTBC Financial is expected to generate 16.32 times less return on investment than LARGAN Precision. But when comparing it to its historical volatility, CTBC Financial Holding is 22.72 times less risky than LARGAN Precision. It trades about 0.2 of its potential returns per unit of risk. LARGAN Precision Co is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest 262,000 in LARGAN Precision Co on November 2, 2024 and sell it today you would earn a total of 13,000 from holding LARGAN Precision Co or generate 4.96% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
CTBC Financial Holding vs. LARGAN Precision Co
Performance |
| Timeline |
| CTBC Financial Holding |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Strong
| LARGAN Precision |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Good
CTBC Financial and LARGAN Precision Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with CTBC Financial and LARGAN Precision
The main advantage of trading using opposite CTBC Financial and LARGAN Precision positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CTBC Financial position performs unexpectedly, LARGAN Precision 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 LARGAN Precision will offset losses from the drop in LARGAN Precision's long position.The idea behind CTBC Financial Holding and LARGAN Precision Co 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.
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