Correlation Between Chung Lien and Cathay Financial

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Can any of the company-specific risk be diversified away by investing in both Chung Lien 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 Chung Lien and Cathay Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Chung Lien Transportation and Cathay Financial Holding, you can compare the effects of market volatilities on Chung Lien 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 Chung Lien with a short position of Cathay Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Chung Lien and Cathay Financial.

Diversification Opportunities for Chung Lien and Cathay Financial

ChungCathayDiversified AwayChungCathayDiversified Away100%
0.38
  Correlation Coefficient

Weak diversification

The 3 months correlation between Chung and Cathay is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Chung Lien Transportation 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 Chung Lien 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 Chung Lien Transportation 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 Chung Lien i.e., Chung Lien and Cathay Financial go up and down completely randomly.

Pair Corralation between Chung Lien and Cathay Financial

Assuming the 90 days trading horizon Chung Lien Transportation is expected to generate 13.87 times more return on investment than Cathay Financial. However, Chung Lien is 13.87 times more volatile than Cathay Financial Holding. It trades about 0.31 of its potential returns per unit of risk. Cathay Financial Holding is currently generating about 0.3 per unit of risk. If you would invest  4,165  in Chung Lien Transportation on November 18, 2024 and sell it today you would earn a total of  305.00  from holding Chung Lien Transportation or generate 7.32% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Chung Lien Transportation  vs.  Cathay Financial Holding

 Performance 
JavaScript chart by amCharts 3.21.15Dec2025Feb 0246
JavaScript chart by amCharts 3.21.155604 2882A
       Timeline  
Chung Lien Transportation 

Risk-Adjusted Performance

OK

 
Weak
 
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in Chung Lien Transportation are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Chung Lien may actually be approaching a critical reversion point that can send shares even higher in March 2025.
JavaScript chart by amCharts 3.21.15DecJanFebJanFeb41.54242.54343.54444.54545.5
Cathay Financial Holding 

Risk-Adjusted Performance

OK

 
Weak
 
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in Cathay Financial Holding are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Cathay Financial is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.
JavaScript chart by amCharts 3.21.15DecJanFebJanFeb60.560.660.760.860.96161.161.261.3

Chung Lien and Cathay Financial Volatility Contrast

   Predicted Return Density   
JavaScript chart by amCharts 3.21.15-2.57-1.93-1.28-0.630.00.651.332.012.693.37 51015
JavaScript chart by amCharts 3.21.155604 2882A
       Returns  

Pair Trading with Chung Lien and Cathay Financial

The main advantage of trading using opposite Chung Lien and Cathay Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Chung Lien 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.
The idea behind Chung Lien Transportation and Cathay Financial Holding pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.
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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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.

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