Correlation Between Taiwan Cement and Cathay Financial
Can any of the company-specific risk be diversified away by investing in both Taiwan Cement and Cathay 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 Taiwan Cement and Cathay Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Taiwan Cement Corp and Cathay Financial Holding, you can compare the effects of market volatilities on Taiwan Cement and Cathay 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 Taiwan Cement with a short position of Cathay Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Taiwan Cement and Cathay Financial.
Diversification Opportunities for Taiwan Cement and Cathay Financial
0.44 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Taiwan and Cathay is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Cement Corp and Cathay Financial Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cathay Financial Holding and Taiwan Cement 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 Taiwan Cement Corp are associated (or correlated) with Cathay Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cathay Financial Holding has no effect on the direction of Taiwan Cement i.e., Taiwan Cement and Cathay Financial go up and down completely randomly.
Pair Corralation between Taiwan Cement and Cathay Financial
Assuming the 90 days trading horizon Taiwan Cement Corp is expected to generate 2.27 times more return on investment than Cathay Financial. However, Taiwan Cement is 2.27 times more volatile than Cathay Financial Holding. It trades about 0.34 of its potential returns per unit of risk. Cathay Financial Holding is currently generating about 0.32 per unit of risk. If you would invest 3,175 in Taiwan Cement Corp on November 28, 2024 and sell it today you would earn a total of 320.00 from holding Taiwan Cement Corp or generate 10.08% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Taiwan Cement Corp vs. Cathay Financial Holding
Performance |
| Timeline |
| Taiwan Cement Corp |
| Cathay Financial Holding |
Taiwan Cement and Cathay Financial Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Taiwan Cement and Cathay Financial
The main advantage of trading using opposite Taiwan Cement and Cathay Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Taiwan Cement position performs unexpectedly, Cathay 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 Cathay Financial will offset losses from the drop in Cathay Financial's long position.| Taiwan Cement vs. Asia Cement Corp | Taiwan Cement vs. Formosa Plastics Corp | Taiwan Cement vs. Nan Ya Plastics | Taiwan Cement vs. China Steel Corp |
| Cathay Financial vs. Fubon Financial Holding | Cathay Financial vs. CTBC Financial Holding | Cathay Financial vs. Mega Financial Holding | Cathay Financial vs. First 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 Stocks Directory module to find actively traded stocks across global markets.
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