Correlation Between Cathay Financial and Cheng Mei
Can any of the company-specific risk be diversified away by investing in both Cathay Financial and Cheng Mei 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 Cheng Mei 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 Cheng Mei Materials, you can compare the effects of market volatilities on Cathay Financial and Cheng Mei 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 Cheng Mei. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cathay Financial and Cheng Mei.
Diversification Opportunities for Cathay Financial and Cheng Mei
-0.39 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Cathay and Cheng is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding Cathay Financial Holding and Cheng Mei Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cheng Mei Materials 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 Cheng Mei. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cheng Mei Materials has no effect on the direction of Cathay Financial i.e., Cathay Financial and Cheng Mei go up and down completely randomly.
Pair Corralation between Cathay Financial and Cheng Mei
Assuming the 90 days trading horizon Cathay Financial Holding is expected to generate 0.67 times more return on investment than Cheng Mei. However, Cathay Financial Holding is 1.49 times less risky than Cheng Mei. It trades about 0.11 of its potential returns per unit of risk. Cheng Mei Materials is currently generating about 0.01 per unit of risk. If you would invest 4,485 in Cathay Financial Holding on September 4, 2024 and sell it today you would earn a total of 2,275 from holding Cathay Financial Holding or generate 50.72% 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. Cheng Mei Materials
Performance |
| Timeline |
| Cathay Financial Holding |
| Cheng Mei Materials |
Cathay Financial and Cheng Mei Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Cathay Financial and Cheng Mei
The main advantage of trading using opposite Cathay Financial and Cheng Mei positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cathay Financial position performs unexpectedly, Cheng Mei 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 Cheng Mei will offset losses from the drop in Cheng Mei'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 |
| Cheng Mei vs. Taiwan Semiconductor Manufacturing | Cheng Mei vs. Yang Ming Marine | Cheng Mei vs. AU Optronics | Cheng Mei vs. Innolux Corp |
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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.
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