Correlation Between Nan Ya and Cathay Financial

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

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

Diversification Opportunities for Nan Ya and Cathay Financial

0.09

Correlation Coefficient

Nan Ya  Cathay Financial

Significant diversification

The 3 months correlation between Nan and Cathay is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Nan Ya Plastics 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 Nan Ya 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 Nan Ya Plastics 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 Nan Ya i.e., Nan Ya and Cathay Financial go up and down completely randomly.

Pair Corralation between Nan Ya and Cathay Financial

Assuming the 90 days trading horizon Nan Ya Plastics is expected to generate 2.27 times more return on investment than Cathay Financial. However, Nan Ya is 2.27 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 -0.11 per unit of risk. If you would invest  3,010  in Nan Ya Plastics on December 29, 2024 and sell it today you would earn a total of  90.00  from holding Nan Ya Plastics or generate 2.99% return on investment over 90 days.

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

Nan Ya Plastics  vs.  Cathay Financial Holding

Nan Ya Plastics

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Nan Ya Plastics are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Nan Ya is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Cathay Financial Holding

Risk-Adjusted Performance

Very Weak

Over the last 90 days Cathay Financial Holding has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Pair Trading with Nan Ya and Cathay Financial

The main advantage of trading using opposite Nan Ya and Cathay Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nan Ya 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 Nan Ya Plastics 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.