Correlation Between Cathay Financial and Compal Broadband
Can any of the company-specific risk be diversified away by investing in both Cathay Financial and Compal Broadband 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 Compal Broadband 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 Compal Broadband Networks, you can compare the effects of market volatilities on Cathay Financial and Compal Broadband 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 Compal Broadband. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cathay Financial and Compal Broadband.
Diversification Opportunities for Cathay Financial and Compal Broadband
0.4 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Cathay and Compal is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Cathay Financial Holding and Compal Broadband Networks in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Compal Broadband Networks 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 Compal Broadband. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Compal Broadband Networks has no effect on the direction of Cathay Financial i.e., Cathay Financial and Compal Broadband go up and down completely randomly.
Pair Corralation between Cathay Financial and Compal Broadband
Assuming the 90 days trading horizon Cathay Financial is expected to generate 15.42 times less return on investment than Compal Broadband. But when comparing it to its historical volatility, Cathay Financial Holding is 16.4 times less risky than Compal Broadband. It trades about 0.16 of its potential returns per unit of risk. Compal Broadband Networks is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest 2,465 in Compal Broadband Networks on August 29, 2024 and sell it today you would earn a total of 300.00 from holding Compal Broadband Networks or generate 12.17% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Cathay Financial Holding vs. Compal Broadband Networks
Performance |
| Timeline |
| Cathay Financial Holding |
| Compal Broadband Networks |
Cathay Financial and Compal Broadband Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Cathay Financial and Compal Broadband
The main advantage of trading using opposite Cathay Financial and Compal Broadband positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cathay Financial position performs unexpectedly, Compal Broadband 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 Compal Broadband will offset losses from the drop in Compal Broadband's long position.| Cathay Financial vs. Compal Broadband Networks | Cathay Financial vs. Excellence Optoelectronic | Cathay Financial vs. Top Union Electronics | Cathay Financial vs. ABC Taiwan Electronics |
| Compal Broadband vs. Accton Technology Corp | Compal Broadband vs. Wistron NeWeb Corp | Compal Broadband vs. Arcadyan Technology Corp | Compal Broadband vs. Sercomm 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..
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