Correlation Between Hon Hai and Cathay Financial
Can any of the company-specific risk be diversified away by investing in both Hon Hai 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 Hon Hai and Cathay Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Hon Hai Precision and Cathay Financial Holding, you can compare the effects of market volatilities on Hon Hai 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 Hon Hai with a short position of Cathay Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hon Hai and Cathay Financial.
Diversification Opportunities for Hon Hai and Cathay Financial
0.88 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Hon and Cathay is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Hon Hai Precision 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 Hon Hai 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 Hon Hai Precision 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 Hon Hai i.e., Hon Hai and Cathay Financial go up and down completely randomly.
Pair Corralation between Hon Hai and Cathay Financial
Assuming the 90 days trading horizon Hon Hai Precision is expected to under-perform the Cathay Financial. In addition to that, Hon Hai is 2.08 times more volatile than Cathay Financial Holding. It trades about -0.15 of its total potential returns per unit of risk. Cathay Financial Holding is currently generating about -0.14 per unit of volatility. If you would invest 6,850 in Cathay Financial Holding on August 30, 2024 and sell it today you would lose (200.00) from holding Cathay Financial Holding or give up 2.92% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Hon Hai Precision vs. Cathay Financial Holding
Performance |
| Timeline |
| Hon Hai Precision |
| Cathay Financial Holding |
Hon Hai and Cathay Financial Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Hon Hai and Cathay Financial
The main advantage of trading using opposite Hon Hai and Cathay Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Hon Hai 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.| Hon Hai vs. United Microelectronics | Hon Hai vs. MediaTek | Hon Hai vs. Chunghwa Telecom Co | Hon Hai vs. Delta Electronics |
| Cathay Financial vs. Taiwan Secom Co | Cathay Financial vs. TTET Union Corp | Cathay Financial vs. China Steel Chemical | Cathay Financial vs. Taiwan Shin Kong |
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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.
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