Correlation Between Cathay Financial and First Insurance
Can any of the company-specific risk be diversified away by investing in both Cathay Financial and First Insurance 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 First Insurance 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 First Insurance Co, you can compare the effects of market volatilities on Cathay Financial and First Insurance 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 First Insurance. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cathay Financial and First Insurance.
Diversification Opportunities for Cathay Financial and First Insurance
0.66 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Cathay and First is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Cathay Financial Holding and First Insurance Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Insurance 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 First Insurance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Insurance has no effect on the direction of Cathay Financial i.e., Cathay Financial and First Insurance go up and down completely randomly.
Pair Corralation between Cathay Financial and First Insurance
Assuming the 90 days trading horizon Cathay Financial is expected to generate 15.69 times less return on investment than First Insurance. But when comparing it to its historical volatility, Cathay Financial Holding is 9.68 times less risky than First Insurance. It trades about 0.31 of its potential returns per unit of risk. First Insurance Co is currently generating about 0.51 of returns per unit of risk over similar time horizon. If you would invest 2,500 in First Insurance Co on November 28, 2024 and sell it today you would earn a total of 270.00 from holding First Insurance Co or generate 10.8% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Cathay Financial Holding vs. First Insurance Co
Performance |
| Timeline |
| Cathay Financial Holding |
| First Insurance |
Cathay Financial and First Insurance Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Cathay Financial and First Insurance
The main advantage of trading using opposite Cathay Financial and First Insurance positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cathay Financial position performs unexpectedly, First Insurance 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 First Insurance will offset losses from the drop in First Insurance's long position.| Cathay Financial vs. Mechema Chemicals Int | Cathay Financial vs. Jinan Acetate Chemical | Cathay Financial vs. Double Bond Chemical | Cathay Financial vs. Standard Chemical Pharmaceutical |
| First Insurance vs. EnTie Commercial Bank | First Insurance vs. Union Bank of | First Insurance vs. Bank of Kaohsiung | First Insurance vs. Taiwan Business Bank |
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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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