Correlation Between Cathay Financial and China General
Can any of the company-specific risk be diversified away by investing in both Cathay Financial and China General 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 Cathay Financial and China General into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Cathay Financial Holding and China General Plastics, you can compare the effects of market volatilities on Cathay Financial and China General 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 Cathay Financial with a short position of China General. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cathay Financial and China General.
Diversification Opportunities for Cathay Financial and China General
0.09 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Cathay and China is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Cathay Financial Holding and China General Plastics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China General Plastics and Cathay 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 Cathay Financial Holding are associated (or correlated) with China General. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China General Plastics has no effect on the direction of Cathay Financial i.e., Cathay Financial and China General go up and down completely randomly.
Pair Corralation between Cathay Financial and China General
Assuming the 90 days trading horizon Cathay Financial Holding is expected to generate 0.93 times more return on investment than China General. However, Cathay Financial Holding is 1.07 times less risky than China General. It trades about 0.11 of its potential returns per unit of risk. China General Plastics is currently generating about -0.12 per unit of risk. If you would invest 4,485 in Cathay Financial Holding on September 4, 2024 and sell it today you would earn a total of 2,275 from holding Cathay Financial Holding or generate 50.72% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Cathay Financial Holding vs. China General Plastics
Performance |
| Timeline |
| Cathay Financial Holding |
| China General Plastics |
Cathay Financial and China General Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Cathay Financial and China General
The main advantage of trading using opposite Cathay Financial and China General positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cathay Financial position performs unexpectedly, China General 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 China General will offset losses from the drop in China General's long position.| 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.
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