Correlation Between Cathay Financial and TMP Steel
Can any of the company-specific risk be diversified away by investing in both Cathay Financial and TMP Steel 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 TMP Steel 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 TMP Steel, you can compare the effects of market volatilities on Cathay Financial and TMP Steel 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 TMP Steel. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cathay Financial and TMP Steel.
Diversification Opportunities for Cathay Financial and TMP Steel
-0.52 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Cathay and TMP is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding Cathay Financial Holding and TMP Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TMP Steel 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 TMP Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TMP Steel has no effect on the direction of Cathay Financial i.e., Cathay Financial and TMP Steel go up and down completely randomly.
Pair Corralation between Cathay Financial and TMP Steel
Assuming the 90 days trading horizon Cathay Financial Holding is expected to generate 0.27 times more return on investment than TMP Steel. However, Cathay Financial Holding is 3.66 times less risky than TMP Steel. It trades about 0.02 of its potential returns per unit of risk. TMP Steel is currently generating about -0.03 per unit of risk. If you would invest 6,020 in Cathay Financial Holding on September 1, 2024 and sell it today you would earn a total of 90.00 from holding Cathay Financial Holding or generate 1.5% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Cathay Financial Holding vs. TMP Steel
Performance |
| Timeline |
| Cathay Financial Holding |
| TMP Steel |
Cathay Financial and TMP Steel Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Cathay Financial and TMP Steel
The main advantage of trading using opposite Cathay Financial and TMP Steel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cathay Financial position performs unexpectedly, TMP Steel 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 TMP Steel will offset losses from the drop in TMP Steel's long position.| Cathay Financial vs. Roundtop Machinery Industries | Cathay Financial vs. Chung Lien Transportation | Cathay Financial vs. Shanghai Commercial Savings | Cathay Financial vs. Strong H Machinery |
| TMP Steel vs. Sunspring Metal Corp | TMP Steel vs. Microelectronics Technology | TMP Steel vs. Sun Max Tech | TMP Steel vs. United Radiant Technology |
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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..
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