Correlation Between Cathay Financial and Chung Hung

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

Diversification Opportunities for Cathay Financial and Chung Hung

-0.08

Correlation Coefficient

Cathay Financial  Chung Hung

Good diversification

The 3 months correlation between Cathay and Chung is -0.08. Overlapping area represents the amount of risk that can be diversified away by holding Cathay Financial Holding and Chung Hung Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chung Hung Steel 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 Chung Hung. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chung Hung Steel has no effect on the direction of Cathay Financial i.e., Cathay Financial and Chung Hung go up and down completely randomly.

Pair Corralation between Cathay Financial and Chung Hung

Assuming the 90 days trading horizon Cathay Financial Holding is expected to under-perform the Chung Hung. But the stock apears to be less risky and, when comparing its historical volatility, Cathay Financial Holding is 2.69 times less risky than Chung Hung. The stock trades about -0.08 of its potential returns per unit of risk. The Chung Hung Steel is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  1,805  in Chung Hung Steel on December 27, 2024 and sell it today you would earn a total of  415.00  from holding Chung Hung Steel or generate 22.99% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.21%
Values	Daily Returns

Cathay Financial Holding  vs.  Chung Hung Steel

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 fairly stable basic indicators, Cathay Financial is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Chung Hung Steel

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Chung Hung Steel are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Chung Hung showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Cathay Financial and Chung Hung

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

The idea behind Cathay Financial Holding and Chung Hung Steel 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .