Correlation Between Chung Hwa and Cathay Financial

Can any of the company-specific risk be diversified away by investing in both Chung Hwa 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 Hwa 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 Hwa Chemical and Cathay Financial Holding, you can compare the effects of market volatilities on Chung Hwa 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 Hwa with a short position of Cathay Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Chung Hwa and Cathay Financial.

Diversification Opportunities for Chung Hwa and Cathay Financial

0.19

Correlation Coefficient

Chung Hwa  Cathay Financial

Average diversification

The 3 months correlation between Chung and Cathay is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding Chung Hwa Chemical 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 Hwa 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 Hwa Chemical 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 Hwa i.e., Chung Hwa and Cathay Financial go up and down completely randomly.

Pair Corralation between Chung Hwa and Cathay Financial

Assuming the 90 days trading horizon Chung Hwa Chemical is expected to generate 20.34 times more return on investment than Cathay Financial. However, Chung Hwa is 20.34 times more volatile than Cathay Financial Holding. It trades about 0.03 of its potential returns per unit of risk. Cathay Financial Holding is currently generating about 0.14 per unit of risk. If you would invest  3,290  in Chung Hwa Chemical on September 4, 2024 and sell it today you would earn a total of  125.00  from holding Chung Hwa Chemical or generate 3.8% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Chung Hwa Chemical  vs.  Cathay Financial Holding

Chung Hwa Chemical

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Chung Hwa Chemical are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Chung Hwa may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Cathay Financial Holding

Risk-Adjusted Performance

11 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Cathay Financial Holding are ranked lower than 11 (%) 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.

Pair Trading with Chung Hwa and Cathay Financial

The main advantage of trading using opposite Chung Hwa and Cathay Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Chung Hwa 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 Hwa Chemical 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.