Correlation Between Cathay Financial and Prime Oil
Can any of the company-specific risk be diversified away by investing in both Cathay Financial and Prime Oil 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 Prime Oil 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 Prime Oil Chemical, you can compare the effects of market volatilities on Cathay Financial and Prime Oil 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 Prime Oil. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cathay Financial and Prime Oil.
Diversification Opportunities for Cathay Financial and Prime Oil
-0.27 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Cathay and Prime is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding Cathay Financial Holding and Prime Oil Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prime Oil Chemical 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 Prime Oil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prime Oil Chemical has no effect on the direction of Cathay Financial i.e., Cathay Financial and Prime Oil go up and down completely randomly.
Pair Corralation between Cathay Financial and Prime Oil
Assuming the 90 days trading horizon Cathay Financial Holding is expected to generate 0.5 times more return on investment than Prime Oil. However, Cathay Financial Holding is 2.0 times less risky than Prime Oil. It trades about 0.04 of its potential returns per unit of risk. Prime Oil Chemical is currently generating about -0.02 per unit of risk. If you would invest 5,650 in Cathay Financial Holding on August 27, 2024 and sell it today you would earn a total of 430.00 from holding Cathay Financial Holding or generate 7.61% 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. Prime Oil Chemical
Performance |
| Timeline |
| Cathay Financial Holding |
| Prime Oil Chemical |
Cathay Financial and Prime Oil Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Cathay Financial and Prime Oil
The main advantage of trading using opposite Cathay Financial and Prime Oil positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cathay Financial position performs unexpectedly, Prime Oil 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 Prime Oil will offset losses from the drop in Prime Oil's long position.| Cathay Financial vs. Quanta Storage | Cathay Financial vs. Wei Chuan Foods | Cathay Financial vs. Tehmag Foods | Cathay Financial vs. Mitake Information |
| Prime Oil vs. President Chain Store | Prime Oil vs. Huaku Development Co | Prime Oil vs. Formosa International Hotels | Prime Oil vs. Mercuries Associates 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.
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