Correlation Between First Financial and CTBC Financial
Can any of the company-specific risk be diversified away by investing in both First Financial 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 First Financial and CTBC Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between First Financial Holding and CTBC Financial Holding, you can compare the effects of market volatilities on First Financial 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 First Financial with a short position of CTBC Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Financial and CTBC Financial.
Diversification Opportunities for First Financial and CTBC Financial
0.56 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between First and CTBC is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding First Financial Holding 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 First 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 First Financial Holding 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 First Financial i.e., First Financial and CTBC Financial go up and down completely randomly.
Pair Corralation between First Financial and CTBC Financial
Assuming the 90 days trading horizon First Financial is expected to generate 5.24 times less return on investment than CTBC Financial. But when comparing it to its historical volatility, First Financial Holding is 1.51 times less risky than CTBC Financial. It trades about 0.03 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 2,188 in CTBC Financial Holding on November 2, 2024 and sell it today you would earn a total of 1,722 from holding CTBC Financial Holding or generate 78.7% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
First Financial Holding vs. CTBC Financial Holding
Performance |
| Timeline |
| First Financial Holding |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Insignificant
| CTBC Financial Holding |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
OK
First Financial and CTBC Financial Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with First Financial and CTBC Financial
The main advantage of trading using opposite First Financial and CTBC Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Financial 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 First Financial Holding 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.
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