Correlation Between Cathay Financial and CTBC Financial
Can any of the company-specific risk be diversified away by investing in both Cathay Financial and CTBC Financial 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 CTBC Financial 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 CTBC Financial Holding, you can compare the effects of market volatilities on Cathay Financial and CTBC Financial 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 CTBC Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cathay Financial and CTBC Financial.
Diversification Opportunities for Cathay Financial and CTBC Financial
0.85 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Cathay and CTBC is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Cathay Financial Holding and CTBC Financial Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CTBC Financial Holding 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 CTBC Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CTBC Financial Holding has no effect on the direction of Cathay Financial i.e., Cathay Financial and CTBC Financial go up and down completely randomly.
Pair Corralation between Cathay Financial and CTBC Financial
Assuming the 90 days trading horizon Cathay Financial Holding is expected to under-perform the CTBC Financial. But the stock apears to be less risky and, when comparing its historical volatility, Cathay Financial Holding is 1.09 times less risky than CTBC Financial. The stock trades about -0.15 of its potential returns per unit of risk. The CTBC Financial Holding is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest 3,590 in CTBC Financial Holding on August 28, 2024 and sell it today you would earn a total of 145.00 from holding CTBC Financial Holding or generate 4.04% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Cathay Financial Holding vs. CTBC Financial Holding
Performance |
| Timeline |
| Cathay Financial Holding |
| CTBC Financial Holding |
Cathay Financial and CTBC Financial Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Cathay Financial and CTBC Financial
The main advantage of trading using opposite Cathay Financial and CTBC Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cathay Financial position performs unexpectedly, CTBC Financial 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 CTBC Financial will offset losses from the drop in CTBC Financial'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 |
| CTBC Financial vs. Fubon Financial Holding | CTBC Financial vs. Cathay Financial Holding | CTBC Financial vs. Mega Financial Holding | CTBC 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.
Other Complementary Tools
| Portfolio Backtesting Avoid under-diversification and over-optimization by backtesting your portfolios | |
| Performance Analysis Check effects of mean-variance optimization against your current asset allocation | |
| Aroon Oscillator Analyze current equity momentum using Aroon Oscillator and other momentum ratios | |
| Volatility Analysis Get historical volatility and risk analysis based on latest market data | |
| USA ETFs Find actively traded Exchange Traded Funds (ETF) in USA |