Correlation Between Cathay Financial and Global Unichip

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

Diversification Opportunities for Cathay Financial and Global Unichip

0.47

Correlation Coefficient

Cathay Financial  Global Unichip

Very weak diversification

The 3 months correlation between Cathay and Global is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Cathay Financial Holding and Global Unichip Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global Unichip 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 Global Unichip. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global Unichip Corp has no effect on the direction of Cathay Financial i.e., Cathay Financial and Global Unichip go up and down completely randomly.

Pair Corralation between Cathay Financial and Global Unichip

Assuming the 90 days trading horizon Cathay Financial is expected to generate 10.23 times less return on investment than Global Unichip. But when comparing it to its historical volatility, Cathay Financial Holding is 2.74 times less risky than Global Unichip. It trades about 0.02 of its potential returns per unit of risk. Global Unichip Corp is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  117,500  in Global Unichip Corp on December 2, 2024 and sell it today you would earn a total of  16,500  from holding Global Unichip Corp or generate 14.04% return on investment over 90 days.

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

Cathay Financial Holding  vs.  Global Unichip Corp

Cathay Financial Holding

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Cathay Financial Holding are ranked lower than 1 (%) 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.

Global Unichip Corp

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Global Unichip Corp are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Global Unichip showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Cathay Financial and Global Unichip

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

The idea behind Cathay Financial Holding and Global Unichip 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.

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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.