Correlation Between Cathay Financial and China Steel
Can any of the company-specific risk be diversified away by investing in both Cathay Financial and China Steel 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 Steel 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 Steel Corp, you can compare the effects of market volatilities on Cathay Financial and China Steel 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 Steel. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cathay Financial and China Steel.
Diversification Opportunities for Cathay Financial and China Steel
0.63 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Cathay and China is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Cathay Financial Holding and China Steel Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Steel Corp 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 Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Steel Corp has no effect on the direction of Cathay Financial i.e., Cathay Financial and China Steel go up and down completely randomly.
Pair Corralation between Cathay Financial and China Steel
Assuming the 90 days trading horizon Cathay Financial Holding is expected to under-perform the China Steel. But the stock apears to be less risky and, when comparing its historical volatility, Cathay Financial Holding is 1.25 times less risky than China Steel. The stock trades about -0.15 of its potential returns per unit of risk. The China Steel Corp is currently generating about -0.08 of returns per unit of risk over similar time horizon. If you would invest 2,275 in China Steel Corp on August 28, 2024 and sell it today you would lose (45.00) from holding China Steel Corp or give up 1.98% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Cathay Financial Holding vs. China Steel Corp
Performance |
| Timeline |
| Cathay Financial Holding |
| China Steel Corp |
Cathay Financial and China Steel Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Cathay Financial and China Steel
The main advantage of trading using opposite Cathay Financial and China Steel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cathay Financial position performs unexpectedly, China Steel 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 Steel will offset losses from the drop in China Steel'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 |
| China Steel vs. Formosa Plastics Corp | China Steel vs. Chunghwa Telecom Co | China Steel vs. Nan Ya Plastics | China Steel vs. Cathay 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..
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