Correlation Between Cathay Financial and HannsTouch Solution

Can any of the company-specific risk be diversified away by investing in both Cathay Financial and HannsTouch Solution 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 Financial and HannsTouch Solution into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Cathay Financial Holding and HannsTouch Solution, you can compare the effects of market volatilities on Cathay Financial and HannsTouch Solution 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 Financial with a short position of HannsTouch Solution. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cathay Financial and HannsTouch Solution.

Diversification Opportunities for Cathay Financial and HannsTouch Solution

0.81

Correlation Coefficient

Cathay Financial  HannsTouch Solution

Very poor diversification

The 3 months correlation between Cathay and HannsTouch is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Cathay Financial Holding and HannsTouch Solution in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HannsTouch Solution and Cathay Financial 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 Financial Holding are associated (or correlated) with HannsTouch Solution. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HannsTouch Solution has no effect on the direction of Cathay Financial i.e., Cathay Financial and HannsTouch Solution go up and down completely randomly.

Pair Corralation between Cathay Financial and HannsTouch Solution

Assuming the 90 days trading horizon Cathay Financial Holding is expected to generate 0.65 times more return on investment than HannsTouch Solution. However, Cathay Financial Holding is 1.53 times less risky than HannsTouch Solution. It trades about 0.12 of its potential returns per unit of risk. HannsTouch Solution is currently generating about 0.03 per unit of risk. If you would invest  4,485  in Cathay Financial Holding on September 4, 2024 and sell it today you would earn a total of  2,405  from holding Cathay Financial Holding or generate 53.62% return on investment over 90 days.

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

Cathay Financial Holding  vs.  HannsTouch Solution

Cathay Financial Holding

Risk-Adjusted Performance

10 of 100

OK

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

HannsTouch Solution

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in HannsTouch Solution are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, HannsTouch Solution showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Cathay Financial and HannsTouch Solution

The main advantage of trading using opposite Cathay Financial and HannsTouch Solution positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cathay Financial position performs unexpectedly, HannsTouch Solution 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 HannsTouch Solution will offset losses from the drop in HannsTouch Solution's long position.

The idea behind Cathay Financial Holding and HannsTouch Solution 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.

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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.