Correlation Between Cathay Financial and Lian Hwa
Can any of the company-specific risk be diversified away by investing in both Cathay Financial and Lian Hwa 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 Lian Hwa 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 Lian Hwa Foods, you can compare the effects of market volatilities on Cathay Financial and Lian Hwa 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 Lian Hwa. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cathay Financial and Lian Hwa.
Diversification Opportunities for Cathay Financial and Lian Hwa
0.85 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Cathay and Lian is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Cathay Financial Holding and Lian Hwa Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lian Hwa Foods 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 Lian Hwa. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lian Hwa Foods has no effect on the direction of Cathay Financial i.e., Cathay Financial and Lian Hwa go up and down completely randomly.
Pair Corralation between Cathay Financial and Lian Hwa
Assuming the 90 days trading horizon Cathay Financial is expected to generate 2.01 times less return on investment than Lian Hwa. But when comparing it to its historical volatility, Cathay Financial Holding is 4.43 times less risky than Lian Hwa. It trades about 0.27 of its potential returns per unit of risk. Lian Hwa Foods is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest 10,750 in Lian Hwa Foods on August 28, 2024 and sell it today you would earn a total of 1,000.00 from holding Lian Hwa Foods or generate 9.3% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Cathay Financial Holding vs. Lian Hwa Foods
Performance |
| Timeline |
| Cathay Financial Holding |
| Lian Hwa Foods |
Cathay Financial and Lian Hwa Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Cathay Financial and Lian Hwa
The main advantage of trading using opposite Cathay Financial and Lian Hwa positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cathay Financial position performs unexpectedly, Lian Hwa 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 Lian Hwa will offset losses from the drop in Lian Hwa's long position.| Cathay Financial vs. Cathay Financial Holding | Cathay Financial vs. Fubon Financial Holding | Cathay Financial vs. CTBC Financial Holding | Cathay Financial vs. Mercuries Life Insurance |
| Lian Hwa vs. Lien Hwa Industrial | Lian Hwa vs. Charoen Pokphand Enterprise | Lian Hwa vs. Great Wall Enterprise | Lian Hwa vs. Uni President Enterprises Corp |
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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.
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