Correlation Between Cathay Financial and Far EasTone

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

Diversification Opportunities for Cathay Financial and Far EasTone

CathayFarDiversified AwayCathayFarDiversified Away100%
0.09
  Correlation Coefficient

Significant diversification

The 3 months correlation between Cathay and Far is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Cathay Financial Holding and Far EasTone Telecommunications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Far EasTone Telecomm 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 Far EasTone. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Far EasTone Telecomm has no effect on the direction of Cathay Financial i.e., Cathay Financial and Far EasTone go up and down completely randomly.

Pair Corralation between Cathay Financial and Far EasTone

Assuming the 90 days trading horizon Cathay Financial Holding is expected to generate 1.26 times more return on investment than Far EasTone. However, Cathay Financial is 1.26 times more volatile than Far EasTone Telecommunications. It trades about 0.0 of its potential returns per unit of risk. Far EasTone Telecommunications is currently generating about -0.1 per unit of risk. If you would invest  6,920  in Cathay Financial Holding on October 10, 2024 and sell it today you would lose (10.00) from holding Cathay Financial Holding or give up 0.14% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Cathay Financial Holding  vs.  Far EasTone Telecommunications

 Performance 
JavaScript chart by amCharts 3.21.15OctNovDec -4-2024
JavaScript chart by amCharts 3.21.152882 4904
       Timeline  
Cathay Financial Holding 

Risk-Adjusted Performance

2 of 100

 
Weak
 
Strong
Weak
Compared to the overall equity markets, risk-adjusted returns on investments in Cathay Financial Holding are ranked lower than 2 (%) 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.
JavaScript chart by amCharts 3.21.15NovDecJanDecJan656667686970
Far EasTone Telecomm 

Risk-Adjusted Performance

1 of 100

 
Weak
 
Strong
Weak
Compared to the overall equity markets, risk-adjusted returns on investments in Far EasTone Telecommunications are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Far EasTone is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.
JavaScript chart by amCharts 3.21.15NovDecJanDecJan878889909192

Cathay Financial and Far EasTone Volatility Contrast

   Predicted Return Density   
JavaScript chart by amCharts 3.21.15-3.64-2.73-1.81-0.9-0.01520.891.822.763.694.63 0.050.100.150.200.250.300.35
JavaScript chart by amCharts 3.21.152882 4904
       Returns  

Pair Trading with Cathay Financial and Far EasTone

The main advantage of trading using opposite Cathay Financial and Far EasTone positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cathay Financial position performs unexpectedly, Far EasTone 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 Far EasTone will offset losses from the drop in Far EasTone's long position.
The idea behind Cathay Financial Holding and Far EasTone Telecommunications 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.

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