Correlation Between Cathay Financial and Ton Yi

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

Diversification Opportunities for Cathay Financial and Ton Yi

0.22

Correlation Coefficient

Cathay Financial  Ton Yi

Modest diversification

The 3 months correlation between Cathay and Ton is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Cathay Financial Holding and Ton Yi Industrial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ton Yi Industrial 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 Ton Yi. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ton Yi Industrial has no effect on the direction of Cathay Financial i.e., Cathay Financial and Ton Yi go up and down completely randomly.

Pair Corralation between Cathay Financial and Ton Yi

Assuming the 90 days trading horizon Cathay Financial Holding is expected to generate 0.95 times more return on investment than Ton Yi. However, Cathay Financial Holding is 1.05 times less risky than Ton Yi. It trades about -0.06 of its potential returns per unit of risk. Ton Yi Industrial is currently generating about -0.19 per unit of risk. If you would invest  6,880  in Cathay Financial Holding on October 15, 2024 and sell it today you would lose (370.00) from holding Cathay Financial Holding or give up 5.38% of portfolio value over 90 days.

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

Cathay Financial Holding  vs.  Ton Yi Industrial

Cathay Financial Holding

Risk-Adjusted Performance

0 of 100

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 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.

Ton Yi Industrial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ton Yi Industrial has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in February 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Pair Trading with Cathay Financial and Ton Yi

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

The idea behind Cathay Financial Holding and Ton Yi Industrial 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.