Correlation Between Cathay Financial and China Petrochemical
Can any of the company-specific risk be diversified away by investing in both Cathay Financial and China Petrochemical 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 Petrochemical 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 Petrochemical Development, you can compare the effects of market volatilities on Cathay Financial and China Petrochemical 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 Petrochemical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cathay Financial and China Petrochemical.
Diversification Opportunities for Cathay Financial and China Petrochemical
-0.67 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Cathay and China is -0.67. Overlapping area represents the amount of risk that can be diversified away by holding Cathay Financial Holding and China Petrochemical Developmen in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Petrochemical 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 Petrochemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Petrochemical has no effect on the direction of Cathay Financial i.e., Cathay Financial and China Petrochemical go up and down completely randomly.
Pair Corralation between Cathay Financial and China Petrochemical
Assuming the 90 days trading horizon Cathay Financial Holding is expected to under-perform the China Petrochemical. But the stock apears to be less risky and, when comparing its historical volatility, Cathay Financial Holding is 1.6 times less risky than China Petrochemical. The stock trades about -0.32 of its potential returns per unit of risk. The China Petrochemical Development is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest 811.00 in China Petrochemical Development on September 3, 2024 and sell it today you would earn a total of 4.00 from holding China Petrochemical Development or generate 0.49% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Cathay Financial Holding vs. China Petrochemical Developmen
Performance |
| Timeline |
| Cathay Financial Holding |
| China Petrochemical |
Cathay Financial and China Petrochemical Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Cathay Financial and China Petrochemical
The main advantage of trading using opposite Cathay Financial and China Petrochemical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cathay Financial position performs unexpectedly, China Petrochemical 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 Petrochemical will offset losses from the drop in China Petrochemical'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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..
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