Correlation Between Cathay Financial and GMI Technology

Can any of the company-specific risk be diversified away by investing in both Cathay Financial and GMI Technology 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 GMI Technology 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 GMI Technology, you can compare the effects of market volatilities on Cathay Financial and GMI Technology 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 GMI Technology. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cathay Financial and GMI Technology.

Diversification Opportunities for Cathay Financial and GMI Technology

-0.43

Correlation Coefficient

Cathay Financial  GMI Technology

Very good diversification

The 3 months correlation between Cathay and GMI is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding Cathay Financial Holding and GMI Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GMI Technology 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 GMI Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GMI Technology has no effect on the direction of Cathay Financial i.e., Cathay Financial and GMI Technology go up and down completely randomly.

Pair Corralation between Cathay Financial and GMI Technology

Assuming the 90 days trading horizon Cathay Financial Holding is expected to generate 0.49 times more return on investment than GMI Technology. However, Cathay Financial Holding is 2.04 times less risky than GMI Technology. It trades about 0.13 of its potential returns per unit of risk. GMI Technology is currently generating about -0.19 per unit of risk. If you would invest  6,290  in Cathay Financial Holding on September 12, 2024 and sell it today you would earn a total of  570.00  from holding Cathay Financial Holding or generate 9.06% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Cathay Financial Holding  vs.  GMI Technology

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.

GMI Technology

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days GMI Technology has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in January 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Pair Trading with Cathay Financial and GMI Technology

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

The idea behind Cathay Financial Holding and GMI Technology 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..