Correlation Between Cathay Financial and Formosa Petrochemical
Can any of the company-specific risk be diversified away by investing in both Cathay Financial and Formosa Petrochemical 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 Formosa Petrochemical 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 Formosa Petrochemical Corp, you can compare the effects of market volatilities on Cathay Financial and Formosa Petrochemical 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 Formosa Petrochemical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cathay Financial and Formosa Petrochemical.
Diversification Opportunities for Cathay Financial and Formosa Petrochemical
-0.49 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Cathay and Formosa is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding Cathay Financial Holding and Formosa Petrochemical Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Formosa Petrochemical 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 Formosa Petrochemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Formosa Petrochemical has no effect on the direction of Cathay Financial i.e., Cathay Financial and Formosa Petrochemical go up and down completely randomly.
Pair Corralation between Cathay Financial and Formosa Petrochemical
Assuming the 90 days trading horizon Cathay Financial Holding is expected to generate 0.55 times more return on investment than Formosa Petrochemical. However, Cathay Financial Holding is 1.81 times less risky than Formosa Petrochemical. It trades about -0.15 of its potential returns per unit of risk. Formosa Petrochemical Corp is currently generating about -0.31 per unit of risk. If you would invest 6,930 in Cathay Financial Holding on August 28, 2024 and sell it today you would lose (200.00) from holding Cathay Financial Holding or give up 2.89% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Cathay Financial Holding vs. Formosa Petrochemical Corp
Performance |
| Timeline |
| Cathay Financial Holding |
| Formosa Petrochemical |
Cathay Financial and Formosa Petrochemical Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Cathay Financial and Formosa Petrochemical
The main advantage of trading using opposite Cathay Financial and Formosa Petrochemical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cathay Financial position performs unexpectedly, Formosa Petrochemical 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 Formosa Petrochemical will offset losses from the drop in Formosa Petrochemical'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 |
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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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.
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