Correlation Between Cathay Financial and Information Technology

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

Diversification Opportunities for Cathay Financial and Information Technology

0.73

Correlation Coefficient

Cathay Financial  Information Technology

Poor diversification

The 3 months correlation between Cathay and Information is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Cathay Financial Holding and Information Technology Total in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Information Technology 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 Information Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Information Technology has no effect on the direction of Cathay Financial i.e., Cathay Financial and Information Technology go up and down completely randomly.

Pair Corralation between Cathay Financial and Information Technology

Assuming the 90 days trading horizon Cathay Financial is expected to generate 26.63 times less return on investment than Information Technology. But when comparing it to its historical volatility, Cathay Financial Holding is 18.97 times less risky than Information Technology. It trades about 0.06 of its potential returns per unit of risk. Information Technology Total is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  4,480  in Information Technology Total on December 2, 2024 and sell it today you would earn a total of  530.00  from holding Information Technology Total or generate 11.83% return on investment over 90 days.

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

Cathay Financial Holding  vs.  Information Technology Total

Cathay Financial Holding

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Cathay Financial Holding are ranked lower than 4 (%) 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.

Information Technology

Risk-Adjusted Performance

Modest

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

Pair Trading with Cathay Financial and Information Technology

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

The idea behind Cathay Financial Holding and Information Technology Total 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.