Correlation Between Cathay Financial and Formosa International
Can any of the company-specific risk be diversified away by investing in both Cathay Financial and Formosa International 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 International 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 International Hotels, you can compare the effects of market volatilities on Cathay Financial and Formosa International 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 International. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cathay Financial and Formosa International.
Diversification Opportunities for Cathay Financial and Formosa International
-0.42 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Cathay and Formosa is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding Cathay Financial Holding and Formosa International Hotels in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Formosa International 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 International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Formosa International has no effect on the direction of Cathay Financial i.e., Cathay Financial and Formosa International go up and down completely randomly.
Pair Corralation between Cathay Financial and Formosa International
Assuming the 90 days trading horizon Cathay Financial Holding is expected to generate 0.16 times more return on investment than Formosa International. However, Cathay Financial Holding is 6.25 times less risky than Formosa International. It trades about 0.05 of its potential returns per unit of risk. Formosa International Hotels is currently generating about -0.02 per unit of risk. If you would invest 5,540 in Cathay Financial Holding on August 27, 2024 and sell it today you would earn a total of 410.00 from holding Cathay Financial Holding or generate 7.4% 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. Formosa International Hotels
Performance |
| Timeline |
| Cathay Financial Holding |
| Formosa International |
Cathay Financial and Formosa International Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Cathay Financial and Formosa International
The main advantage of trading using opposite Cathay Financial and Formosa International positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cathay Financial position performs unexpectedly, Formosa International 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 International will offset losses from the drop in Formosa International's long position.| Cathay Financial vs. United Radiant Technology | Cathay Financial vs. Tainet Communication System | Cathay Financial vs. China Airlines | Cathay Financial vs. WinMate Communication INC |
| Formosa International vs. President Chain Store | Formosa International vs. Uni President Enterprises Corp | Formosa International vs. Ambassador Hotel | Formosa International vs. Hotai Motor Co |
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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.
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