Correlation Between Cathay Financial and Kuo Yang
Can any of the company-specific risk be diversified away by investing in both Cathay Financial and Kuo Yang 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 Kuo Yang 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 Kuo Yang Construction, you can compare the effects of market volatilities on Cathay Financial and Kuo Yang 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 Kuo Yang. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cathay Financial and Kuo Yang.
Diversification Opportunities for Cathay Financial and Kuo Yang
0.64 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Cathay and Kuo is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Cathay Financial Holding and Kuo Yang Construction in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kuo Yang Construction 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 Kuo Yang. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kuo Yang Construction has no effect on the direction of Cathay Financial i.e., Cathay Financial and Kuo Yang go up and down completely randomly.
Pair Corralation between Cathay Financial and Kuo Yang
Assuming the 90 days trading horizon Cathay Financial Holding is expected to under-perform the Kuo Yang. But the stock apears to be less risky and, when comparing its historical volatility, Cathay Financial Holding is 1.23 times less risky than Kuo Yang. The stock trades about -0.11 of its potential returns per unit of risk. The Kuo Yang Construction is currently generating about -0.09 of returns per unit of risk over similar time horizon. If you would invest 2,285 in Kuo Yang Construction on December 28, 2024 and sell it today you would lose (165.00) from holding Kuo Yang Construction or give up 7.22% of portfolio value over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Significant |
Accuracy | 98.21% |
Values | Daily Returns |
Cathay Financial Holding vs. Kuo Yang Construction
Performance |
Timeline |
Cathay Financial Holding |
Kuo Yang Construction |
Cathay Financial and Kuo Yang Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Cathay Financial and Kuo Yang
The main advantage of trading using opposite Cathay Financial and Kuo Yang positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cathay Financial position performs unexpectedly, Kuo Yang 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 Kuo Yang will offset losses from the drop in Kuo Yang's long position.Cathay Financial vs. Fubon Financial Holding | Cathay Financial vs. CTBC Financial Holding | Cathay Financial vs. Mega Financial Holding | Cathay Financial vs. First Financial Holding |
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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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.
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