Correlation Between Cathay Financial and Taiwan Shin
Can any of the company-specific risk be diversified away by investing in both Cathay Financial and Taiwan Shin 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 Taiwan Shin 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 Taiwan Shin Kong, you can compare the effects of market volatilities on Cathay Financial and Taiwan Shin 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 Taiwan Shin. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cathay Financial and Taiwan Shin.
Diversification Opportunities for Cathay Financial and Taiwan Shin
0.69 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Cathay and Taiwan is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Cathay Financial Holding and Taiwan Shin Kong in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Taiwan Shin Kong 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 Taiwan Shin. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Taiwan Shin Kong has no effect on the direction of Cathay Financial i.e., Cathay Financial and Taiwan Shin go up and down completely randomly.
Pair Corralation between Cathay Financial and Taiwan Shin
Assuming the 90 days trading horizon Cathay Financial Holding is expected to under-perform the Taiwan Shin. In addition to that, Cathay Financial is 4.32 times more volatile than Taiwan Shin Kong. It trades about -0.1 of its total potential returns per unit of risk. Taiwan Shin Kong is currently generating about -0.07 per unit of volatility. If you would invest 4,115 in Taiwan Shin Kong on October 25, 2024 and sell it today you would lose (20.00) from holding Taiwan Shin Kong or give up 0.49% 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. Taiwan Shin Kong
Performance |
| Timeline |
| Cathay Financial Holding |
| Taiwan Shin Kong |
Cathay Financial and Taiwan Shin Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Cathay Financial and Taiwan Shin
The main advantage of trading using opposite Cathay Financial and Taiwan Shin positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cathay Financial position performs unexpectedly, Taiwan Shin 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 Taiwan Shin will offset losses from the drop in Taiwan Shin's long position.| Cathay Financial vs. Taiwan Semiconductor Manufacturing | Cathay Financial vs. Evergreen Marine Corp | Cathay Financial vs. Yang Ming Marine | Cathay Financial vs. Wan Hai Lines |
| Taiwan Shin vs. Taiwan Secom Co | Taiwan Shin vs. Yulon Finance Corp | Taiwan Shin vs. CHC Resources Corp | Taiwan Shin vs. Nak Sealing Technologies |
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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.
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