Correlation Between Cathay Financial and Taiwan Semiconductor
Can any of the company-specific risk be diversified away by investing in both Cathay Financial and Taiwan Semiconductor 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 Taiwan Semiconductor 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 Taiwan Semiconductor Manufacturing, you can compare the effects of market volatilities on Cathay Financial and Taiwan Semiconductor 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 Taiwan Semiconductor. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cathay Financial and Taiwan Semiconductor.
Diversification Opportunities for Cathay Financial and Taiwan Semiconductor
-0.03 | Correlation Coefficient |
Good diversification
The 3 months correlation between Cathay and Taiwan is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding Cathay Financial Holding and Taiwan Semiconductor Manufactu in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Taiwan Semiconductor 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 Taiwan Semiconductor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Taiwan Semiconductor has no effect on the direction of Cathay Financial i.e., Cathay Financial and Taiwan Semiconductor go up and down completely randomly.
Pair Corralation between Cathay Financial and Taiwan Semiconductor
Assuming the 90 days trading horizon Cathay Financial Holding is expected to under-perform the Taiwan Semiconductor. But the stock apears to be less risky and, when comparing its historical volatility, Cathay Financial Holding is 1.24 times less risky than Taiwan Semiconductor. The stock trades about -0.15 of its potential returns per unit of risk. The Taiwan Semiconductor Manufacturing is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest 108,000 in Taiwan Semiconductor Manufacturing on October 24, 2024 and sell it today you would earn a total of 4,000 from holding Taiwan Semiconductor Manufacturing or generate 3.7% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Cathay Financial Holding vs. Taiwan Semiconductor Manufactu
Performance |
| Timeline |
| Cathay Financial Holding |
| Taiwan Semiconductor |
Cathay Financial and Taiwan Semiconductor Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Cathay Financial and Taiwan Semiconductor
The main advantage of trading using opposite Cathay Financial and Taiwan Semiconductor positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cathay Financial position performs unexpectedly, Taiwan Semiconductor 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 Taiwan Semiconductor will offset losses from the drop in Taiwan Semiconductor'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 |
| Taiwan Semiconductor vs. United Microelectronics | Taiwan Semiconductor vs. Hon Hai Precision | Taiwan Semiconductor vs. MediaTek | Taiwan Semiconductor vs. Taiwan Semiconductor Manufacturing |
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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