Correlation Between CTBC Financial and Cathay Chemical
Can any of the company-specific risk be diversified away by investing in both CTBC Financial and Cathay Chemical 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 CTBC Financial and Cathay Chemical into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between CTBC Financial Holding and Cathay Chemical Works, you can compare the effects of market volatilities on CTBC Financial and Cathay Chemical 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 CTBC Financial with a short position of Cathay Chemical. Check out your portfolio center. Please also check ongoing floating volatility patterns of CTBC Financial and Cathay Chemical.
Diversification Opportunities for CTBC Financial and Cathay Chemical
0.54 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between CTBC and Cathay is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding CTBC Financial Holding and Cathay Chemical Works in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cathay Chemical Works and CTBC 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 CTBC Financial Holding are associated (or correlated) with Cathay Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cathay Chemical Works has no effect on the direction of CTBC Financial i.e., CTBC Financial and Cathay Chemical go up and down completely randomly.
Pair Corralation between CTBC Financial and Cathay Chemical
Assuming the 90 days trading horizon CTBC Financial is expected to generate 3.14 times less return on investment than Cathay Chemical. But when comparing it to its historical volatility, CTBC Financial Holding is 6.49 times less risky than Cathay Chemical. It trades about 0.07 of its potential returns per unit of risk. Cathay Chemical Works is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest 4,995 in Cathay Chemical Works on November 28, 2024 and sell it today you would earn a total of 425.00 from holding Cathay Chemical Works or generate 8.51% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
CTBC Financial Holding vs. Cathay Chemical Works
Performance |
| Timeline |
| CTBC Financial Holding |
| Cathay Chemical Works |
CTBC Financial and Cathay Chemical Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with CTBC Financial and Cathay Chemical
The main advantage of trading using opposite CTBC Financial and Cathay Chemical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CTBC Financial position performs unexpectedly, Cathay Chemical 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 Cathay Chemical will offset losses from the drop in Cathay Chemical's long position.| CTBC Financial vs. Ocean Plastics Co | CTBC Financial vs. Kedge Construction Co | CTBC Financial vs. Advanced Echem Materials | CTBC Financial vs. U Ming Marine Transport |
| Cathay Chemical vs. Chung Hwa Chemical | Cathay Chemical vs. China Man Made Fiber | Cathay Chemical vs. Sesoda Corp | Cathay Chemical vs. Everlight Chemical Industrial |
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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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