Correlation Between ABC Taiwan and Cathay Financial
Can any of the company-specific risk be diversified away by investing in both ABC Taiwan 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 ABC Taiwan and Cathay Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between ABC Taiwan Electronics and Cathay Financial Holding, you can compare the effects of market volatilities on ABC Taiwan 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 ABC Taiwan with a short position of Cathay Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of ABC Taiwan and Cathay Financial.
Diversification Opportunities for ABC Taiwan and Cathay Financial
0.83 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between ABC and Cathay is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding ABC Taiwan Electronics 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 ABC Taiwan 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 ABC Taiwan Electronics 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 ABC Taiwan i.e., ABC Taiwan and Cathay Financial go up and down completely randomly.
Pair Corralation between ABC Taiwan and Cathay Financial
Assuming the 90 days trading horizon ABC Taiwan Electronics is expected to under-perform the Cathay Financial. In addition to that, ABC Taiwan is 5.09 times more volatile than Cathay Financial Holding. It trades about 0.0 of its total potential returns per unit of risk. Cathay Financial Holding is currently generating about 0.01 per unit of volatility. If you would invest 5,980 in Cathay Financial Holding on September 1, 2024 and sell it today you would earn a total of 20.00 from holding Cathay Financial Holding or generate 0.33% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
ABC Taiwan Electronics vs. Cathay Financial Holding
Performance |
| Timeline |
| ABC Taiwan Electronics |
| Cathay Financial Holding |
ABC Taiwan and Cathay Financial Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with ABC Taiwan and Cathay Financial
The main advantage of trading using opposite ABC Taiwan and Cathay Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ABC Taiwan 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.| ABC Taiwan vs. Chinese Maritime Transport | ABC Taiwan vs. Founding Construction Development | ABC Taiwan vs. Dawushan Farm Tech | ABC Taiwan vs. Chung Hsin Electric Machinery |
| Cathay Financial vs. MedFirst Healthcare Services | Cathay Financial vs. Great China Metal | Cathay Financial vs. Chernan Metal Industrial | Cathay Financial vs. Simple Mart Retail |
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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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