Correlation Between Cathay Financial and Rich Development
Can any of the company-specific risk be diversified away by investing in both Cathay Financial and Rich Development 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 Rich Development 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 Rich Development Co, you can compare the effects of market volatilities on Cathay Financial and Rich Development 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 Rich Development. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cathay Financial and Rich Development.
Diversification Opportunities for Cathay Financial and Rich Development
-0.68 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Cathay and Rich is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding Cathay Financial Holding and Rich Development Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rich Development 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 Rich Development. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rich Development has no effect on the direction of Cathay Financial i.e., Cathay Financial and Rich Development go up and down completely randomly.
Pair Corralation between Cathay Financial and Rich Development
Assuming the 90 days trading horizon Cathay Financial is expected to generate 4.48 times less return on investment than Rich Development. But when comparing it to its historical volatility, Cathay Financial Holding is 6.75 times less risky than Rich Development. It trades about 0.03 of its potential returns per unit of risk. Rich Development Co is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest 853.00 in Rich Development Co on October 9, 2024 and sell it today you would earn a total of 110.00 from holding Rich Development Co or generate 12.9% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Cathay Financial Holding vs. Rich Development Co
Performance |
| Timeline |
| Cathay Financial Holding |
| Rich Development |
Cathay Financial and Rich Development Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Cathay Financial and Rich Development
The main advantage of trading using opposite Cathay Financial and Rich Development positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cathay Financial position performs unexpectedly, Rich Development 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 Rich Development will offset losses from the drop in Rich Development's long position.| Cathay Financial vs. Cathay Financial Holding | Cathay Financial vs. Fubon Financial Holding | Cathay Financial vs. Mercuries Life Insurance | Cathay Financial vs. Mercuries Associates Holding |
| Rich Development vs. Kenmec Mechanical Engineering | Rich Development vs. XAC Automation | Rich Development vs. AVY Precision Technology | Rich Development vs. Hung Sheng Construction |
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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..
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