Correlation Between Cathay Financial and Sinopower Semiconductor
Can any of the company-specific risk be diversified away by investing in both Cathay Financial and Sinopower 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 Sinopower 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 Sinopower Semiconductor, you can compare the effects of market volatilities on Cathay Financial and Sinopower 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 Sinopower Semiconductor. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cathay Financial and Sinopower Semiconductor.
Diversification Opportunities for Cathay Financial and Sinopower Semiconductor
0.64 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Cathay and Sinopower is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Cathay Financial Holding and Sinopower Semiconductor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sinopower 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 Sinopower Semiconductor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sinopower Semiconductor has no effect on the direction of Cathay Financial i.e., Cathay Financial and Sinopower Semiconductor go up and down completely randomly.
Pair Corralation between Cathay Financial and Sinopower Semiconductor
Assuming the 90 days trading horizon Cathay Financial Holding is expected to generate 0.53 times more return on investment than Sinopower Semiconductor. However, Cathay Financial Holding is 1.87 times less risky than Sinopower Semiconductor. It trades about -0.14 of its potential returns per unit of risk. Sinopower Semiconductor is currently generating about -0.15 per unit of risk. If you would invest 6,850 in Cathay Financial Holding on August 30, 2024 and sell it today you would lose (200.00) from holding Cathay Financial Holding or give up 2.92% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Cathay Financial Holding vs. Sinopower Semiconductor
Performance |
| Timeline |
| Cathay Financial Holding |
| Sinopower Semiconductor |
Cathay Financial and Sinopower Semiconductor Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Cathay Financial and Sinopower Semiconductor
The main advantage of trading using opposite Cathay Financial and Sinopower Semiconductor positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cathay Financial position performs unexpectedly, Sinopower 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 Sinopower Semiconductor will offset losses from the drop in Sinopower Semiconductor's long position.| Cathay Financial vs. Taiwan Secom Co | Cathay Financial vs. TTET Union Corp | Cathay Financial vs. China Steel Chemical | Cathay Financial vs. Taiwan Shin Kong |
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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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