Correlation Between Cathay Financial and Advantech

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

Diversification Opportunities for Cathay Financial and Advantech

0.03

Correlation Coefficient

Cathay Financial  Advantech

Significant diversification

The 3 months correlation between Cathay and Advantech is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding Cathay Financial Holding and Advantech Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Advantech 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 Advantech. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Advantech has no effect on the direction of Cathay Financial i.e., Cathay Financial and Advantech go up and down completely randomly.

Pair Corralation between Cathay Financial and Advantech

Assuming the 90 days trading horizon Cathay Financial is expected to generate 8.05 times less return on investment than Advantech. But when comparing it to its historical volatility, Cathay Financial Holding is 10.63 times less risky than Advantech. It trades about 0.16 of its potential returns per unit of risk. Advantech Co is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  32,350  in Advantech Co on September 5, 2024 and sell it today you would earn a total of  3,850  from holding Advantech Co or generate 11.9% 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.  Advantech Co

Cathay Financial Holding

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Cathay Financial Holding are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Cathay Financial is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Advantech

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Advantech Co are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Advantech may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Cathay Financial and Advantech

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

The idea behind Cathay Financial Holding and Advantech Co 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.