Correlation Between First Financial and Cathay Financial
Can any of the company-specific risk be diversified away by investing in both First Financial and Cathay Financial 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 First Financial and Cathay Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between First Financial Holding and Cathay Financial Holding, you can compare the effects of market volatilities on First Financial and Cathay Financial 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 First Financial with a short position of Cathay Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Financial and Cathay Financial.
Diversification Opportunities for First Financial and Cathay Financial
0.06 | Correlation Coefficient |
Significant diversification
The 3 months correlation between First and Cathay is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding First Financial Holding and Cathay Financial Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cathay Financial Holding and First 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 First Financial Holding are associated (or correlated) with Cathay Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cathay Financial Holding has no effect on the direction of First Financial i.e., First Financial and Cathay Financial go up and down completely randomly.
Pair Corralation between First Financial and Cathay Financial
Assuming the 90 days trading horizon First Financial is expected to generate 5.81 times less return on investment than Cathay Financial. But when comparing it to its historical volatility, First Financial Holding is 1.61 times less risky than Cathay Financial. It trades about 0.03 of its potential returns per unit of risk. Cathay Financial Holding is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest 4,395 in Cathay Financial Holding on August 25, 2024 and sell it today you would earn a total of 2,285 from holding Cathay Financial Holding or generate 51.99% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
First Financial Holding vs. Cathay Financial Holding
Performance |
| Timeline |
| First Financial Holding |
| Cathay Financial Holding |
First Financial and Cathay Financial Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with First Financial and Cathay Financial
The main advantage of trading using opposite First Financial and Cathay Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Financial position performs unexpectedly, Cathay Financial 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 Financial will offset losses from the drop in Cathay Financial's long position.| First Financial vs. Mega Financial Holding | First Financial vs. CTBC Financial Holding | First Financial vs. Hua Nan Financial | First Financial vs. ESUN Financial Holding |
| Cathay Financial vs. Fubon Financial Holding | Cathay Financial vs. CTBC Financial Holding | Cathay Financial vs. Mega Financial Holding | Cathay Financial vs. First Financial Holding |
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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.
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