Correlation Between Cathay Financial and Chung Hung
Can any of the company-specific risk be diversified away by investing in both Cathay Financial and Chung Hung 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 Chung Hung 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 Chung Hung Steel, you can compare the effects of market volatilities on Cathay Financial and Chung Hung 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 Chung Hung. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cathay Financial and Chung Hung.
Diversification Opportunities for Cathay Financial and Chung Hung
0.75 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Cathay and Chung is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Cathay Financial Holding and Chung Hung Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chung Hung Steel 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 Chung Hung. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chung Hung Steel has no effect on the direction of Cathay Financial i.e., Cathay Financial and Chung Hung go up and down completely randomly.
Pair Corralation between Cathay Financial and Chung Hung
Assuming the 90 days trading horizon Cathay Financial is expected to generate 1.77 times less return on investment than Chung Hung. But when comparing it to its historical volatility, Cathay Financial Holding is 2.07 times less risky than Chung Hung. It trades about 0.05 of its potential returns per unit of risk. Chung Hung Steel is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest 1,885 in Chung Hung Steel on September 3, 2024 and sell it today you would earn a total of 85.00 from holding Chung Hung Steel or generate 4.51% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Cathay Financial Holding vs. Chung Hung Steel
Performance |
| Timeline |
| Cathay Financial Holding |
| Chung Hung Steel |
Cathay Financial and Chung Hung Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Cathay Financial and Chung Hung
The main advantage of trading using opposite Cathay Financial and Chung Hung positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cathay Financial position performs unexpectedly, Chung Hung 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 Chung Hung will offset losses from the drop in Chung Hung'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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.
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