Correlation Between Cathay Financial and Flexium Interconnect

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

Diversification Opportunities for Cathay Financial and Flexium Interconnect

0.57

Correlation Coefficient

Cathay Financial  Flexium Interconnect

Very weak diversification

The 3 months correlation between Cathay and Flexium is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Cathay Financial Holding and Flexium Interconnect in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Flexium Interconnect 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 Flexium Interconnect. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Flexium Interconnect has no effect on the direction of Cathay Financial i.e., Cathay Financial and Flexium Interconnect go up and down completely randomly.

Pair Corralation between Cathay Financial and Flexium Interconnect

Assuming the 90 days trading horizon Cathay Financial Holding is expected to under-perform the Flexium Interconnect. But the stock apears to be less risky and, when comparing its historical volatility, Cathay Financial Holding is 1.93 times less risky than Flexium Interconnect. The stock trades about -0.11 of its potential returns per unit of risk. The Flexium Interconnect is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  6,540  in Flexium Interconnect on December 30, 2024 and sell it today you would lose (390.00) from holding Flexium Interconnect or give up 5.96% of portfolio value over 90 days.

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

Cathay Financial Holding  vs.  Flexium Interconnect

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 latest abnormal performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Flexium Interconnect

Risk-Adjusted Performance

Very Weak

Over the last 90 days Flexium Interconnect has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Flexium Interconnect is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Cathay Financial and Flexium Interconnect

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

The idea behind Cathay Financial Holding and Flexium Interconnect 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 Global Correlations module to find global opportunities by holding instruments from different markets.