Correlation Between Taiwan Weighted and Cathay Financial
Can any of the company-specific risk be diversified away by investing in both Taiwan Weighted 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 Taiwan Weighted and Cathay Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Taiwan Weighted and Cathay Financial Holding, you can compare the effects of market volatilities on Taiwan Weighted 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 Taiwan Weighted with a short position of Cathay Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Taiwan Weighted and Cathay Financial.
Diversification Opportunities for Taiwan Weighted and Cathay Financial
0.78 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Taiwan and Cathay is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Weighted 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 Taiwan Weighted 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 Taiwan Weighted 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 Taiwan Weighted i.e., Taiwan Weighted and Cathay Financial go up and down completely randomly.
Pair Corralation between Taiwan Weighted and Cathay Financial
Assuming the 90 days trading horizon Taiwan Weighted is expected to generate 2.03 times less return on investment than Cathay Financial. But when comparing it to its historical volatility, Taiwan Weighted is 1.05 times less risky than Cathay Financial. It trades about 0.04 of its potential returns per unit of risk. Cathay Financial Holding is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest 6,350 in Cathay Financial Holding on August 28, 2024 and sell it today you would earn a total of 380.00 from holding Cathay Financial Holding or generate 5.98% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.16% |
| Values | Daily Returns |
Taiwan Weighted vs. Cathay Financial Holding
Performance |
| Timeline |
Taiwan Weighted and Cathay Financial Volatility Contrast
Predicted Return Density |
| Returns |
Taiwan Weighted
Pair trading matchups for Taiwan Weighted
Cathay Financial Holding
Pair trading matchups for Cathay Financial
Pair Trading with Taiwan Weighted and Cathay Financial
The main advantage of trading using opposite Taiwan Weighted and Cathay Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Taiwan Weighted 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.| Taiwan Weighted vs. Taichung Commercial Bank | Taiwan Weighted vs. China Times Publishing | Taiwan Weighted vs. First Insurance Co | Taiwan Weighted vs. Mega 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.
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