Correlation Between Cathay General and First Financial
Can any of the company-specific risk be diversified away by investing in both Cathay General and First 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 Cathay General and First Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Cathay General Bancorp and First Financial Bankshares, you can compare the effects of market volatilities on Cathay General and First 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 Cathay General with a short position of First Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cathay General and First Financial.
Diversification Opportunities for Cathay General and First Financial
0.91 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Cathay and First is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Cathay General Bancorp and First Financial Bankshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Financial Bank and Cathay General 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 General Bancorp are associated (or correlated) with First Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Financial Bank has no effect on the direction of Cathay General i.e., Cathay General and First Financial go up and down completely randomly.
Pair Corralation between Cathay General and First Financial
Given the investment horizon of 90 days Cathay General Bancorp is expected to generate 0.98 times more return on investment than First Financial. However, Cathay General Bancorp is 1.02 times less risky than First Financial. It trades about 0.15 of its potential returns per unit of risk. First Financial Bankshares is currently generating about 0.13 per unit of risk. If you would invest 4,371 in Cathay General Bancorp on August 28, 2024 and sell it today you would earn a total of 1,014 from holding Cathay General Bancorp or generate 23.2% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Cathay General Bancorp vs. First Financial Bankshares
Performance |
| Timeline |
| Cathay General Bancorp |
| First Financial Bank |
Cathay General and First Financial Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Cathay General and First Financial
The main advantage of trading using opposite Cathay General and First Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cathay General position performs unexpectedly, First 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 First Financial will offset losses from the drop in First Financial's long position.| Cathay General vs. Fifth Third Bancorp | Cathay General vs. Zions Bancorporation | Cathay General vs. Huntington Bancshares Incorporated | Cathay General vs. Comerica |
| First Financial vs. Fifth Third Bancorp | First Financial vs. Zions Bancorporation | First Financial vs. Huntington Bancshares Incorporated | First Financial vs. Comerica |
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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.
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