Correlation Between Cathay Financial and Eva Airways

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

Diversification Opportunities for Cathay Financial and Eva Airways

0.17

Correlation Coefficient

Cathay Financial  Eva Airways

Average diversification

The 3 months correlation between Cathay and Eva is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding Cathay Financial Holding and Eva Airways Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eva Airways Corp 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 Eva Airways. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eva Airways Corp has no effect on the direction of Cathay Financial i.e., Cathay Financial and Eva Airways go up and down completely randomly.

Pair Corralation between Cathay Financial and Eva Airways

Assuming the 90 days trading horizon Cathay Financial is expected to generate 1.08 times less return on investment than Eva Airways. But when comparing it to its historical volatility, Cathay Financial Holding is 1.45 times less risky than Eva Airways. It trades about 0.08 of its potential returns per unit of risk. Eva Airways Corp is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  2,865  in Eva Airways Corp on October 4, 2024 and sell it today you would earn a total of  1,770  from holding Eva Airways Corp or generate 61.78% return on investment over 90 days.

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

Cathay Financial Holding  vs.  Eva Airways Corp

Cathay Financial Holding

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Cathay Financial Holding are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. 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.

Eva Airways Corp

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Eva Airways Corp are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Eva Airways showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Cathay Financial and Eva Airways

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

The idea behind Cathay Financial Holding and Eva Airways Corp 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.