Correlation Between Cathay Financial and First Financial
Can any of the company-specific risk be diversified away by investing in both Cathay Financial and First 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 First 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 First Financial Holding, you can compare the effects of market volatilities on Cathay Financial and First 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 First Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cathay Financial and First Financial.
Diversification Opportunities for Cathay Financial and First Financial
0.07 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Cathay and First is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Cathay Financial Holding and First Financial Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First 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 First Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Financial Holding has no effect on the direction of Cathay Financial i.e., Cathay Financial and First Financial go up and down completely randomly.
Pair Corralation between Cathay Financial and First Financial
Assuming the 90 days trading horizon Cathay Financial Holding is expected to generate 1.52 times more return on investment than First Financial. However, Cathay Financial is 1.52 times more volatile than First Financial Holding. It trades about 0.1 of its potential returns per unit of risk. First Financial Holding is currently generating about 0.02 per unit of risk. If you would invest 4,320 in Cathay Financial Holding on August 28, 2024 and sell it today you would earn a total of 2,410 from holding Cathay Financial Holding or generate 55.79% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Cathay Financial Holding vs. First Financial Holding
Performance |
| Timeline |
| Cathay Financial Holding |
| First Financial Holding |
Cathay Financial and First Financial Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Cathay Financial and First Financial
The main advantage of trading using opposite Cathay Financial and First Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cathay Financial position performs unexpectedly, First 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 First Financial will offset losses from the drop in First 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 |
| First Financial vs. Mega Financial Holding | First Financial vs. CTBC Financial Holding | First Financial vs. Hua Nan Financial | First Financial vs. ESUN 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.
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