Correlation Between Advantech and Cathay Financial

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

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

Diversification Opportunities for Advantech and Cathay Financial

0.54

Correlation Coefficient

Advantech  Cathay Financial

Very weak diversification

The 3 months correlation between Advantech and Cathay is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Advantech Co 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 Advantech 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 Advantech Co 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 Advantech i.e., Advantech and Cathay Financial go up and down completely randomly.

Pair Corralation between Advantech and Cathay Financial

Assuming the 90 days trading horizon Advantech Co is expected to generate 12.86 times more return on investment than Cathay Financial. However, Advantech is 12.86 times more volatile than Cathay Financial Holding. It trades about 0.11 of its potential returns per unit of risk. Cathay Financial Holding is currently generating about 0.16 per unit of risk. If you would invest  34,550  in Advantech Co on December 29, 2024 and sell it today you would earn a total of  4,250  from holding Advantech Co or generate 12.3% return on investment over 90 days.

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

Advantech Co  vs.  Cathay Financial Holding

Advantech

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Advantech Co are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Advantech showed solid returns over the last few months and may actually be approaching a breakup point.

Cathay Financial Holding

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Cathay Financial Holding are ranked lower than 12 (%) 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 Advantech and Cathay Financial

The main advantage of trading using opposite Advantech and Cathay Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Advantech 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 Advantech Co 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..