Correlation Between Cathay Financial and Hon Hai
Can any of the company-specific risk be diversified away by investing in both Cathay Financial and Hon Hai 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 Hon Hai 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 Hon Hai Precision, you can compare the effects of market volatilities on Cathay Financial and Hon Hai 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 Hon Hai. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cathay Financial and Hon Hai.
Diversification Opportunities for Cathay Financial and Hon Hai
0.88 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Cathay and Hon is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Cathay Financial Holding and Hon Hai Precision in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hon Hai Precision 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 Hon Hai. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hon Hai Precision has no effect on the direction of Cathay Financial i.e., Cathay Financial and Hon Hai go up and down completely randomly.
Pair Corralation between Cathay Financial and Hon Hai
Assuming the 90 days trading horizon Cathay Financial Holding is expected to generate 0.6 times more return on investment than Hon Hai. However, Cathay Financial Holding is 1.65 times less risky than Hon Hai. It trades about -0.16 of its potential returns per unit of risk. Hon Hai Precision is currently generating about -0.19 per unit of risk. If you would invest 6,900 in Cathay Financial Holding on August 26, 2024 and sell it today you would lose (220.00) from holding Cathay Financial Holding or give up 3.19% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Cathay Financial Holding vs. Hon Hai Precision
Performance |
| Timeline |
| Cathay Financial Holding |
| Hon Hai Precision |
Cathay Financial and Hon Hai Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Cathay Financial and Hon Hai
The main advantage of trading using opposite Cathay Financial and Hon Hai positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cathay Financial position performs unexpectedly, Hon Hai 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 Hon Hai will offset losses from the drop in Hon Hai'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 |
| Hon Hai vs. United Microelectronics | Hon Hai vs. MediaTek | Hon Hai vs. Chunghwa Telecom Co | Hon Hai vs. Delta Electronics |
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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.
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