Correlation Between Cathay Financial and Yuanta Financial

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

Diversification Opportunities for Cathay Financial and Yuanta Financial

0.84

Correlation Coefficient

Cathay Financial  Yuanta Financial

Very poor diversification

The 3 months correlation between Cathay and Yuanta is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Cathay Financial Holding and Yuanta Financial Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Yuanta Financial Holdings 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 Yuanta Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Yuanta Financial Holdings has no effect on the direction of Cathay Financial i.e., Cathay Financial and Yuanta Financial go up and down completely randomly.

Pair Corralation between Cathay Financial and Yuanta Financial

Assuming the 90 days trading horizon Cathay Financial Holding is expected to generate 0.17 times more return on investment than Yuanta Financial. However, Cathay Financial Holding is 5.74 times less risky than Yuanta Financial. It trades about 0.04 of its potential returns per unit of risk. Yuanta Financial Holdings is currently generating about -0.02 per unit of risk. If you would invest  6,000  in Cathay Financial Holding on October 8, 2024 and sell it today you would earn a total of  10.00  from holding Cathay Financial Holding or generate 0.17% return on investment over 90 days.

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

Cathay Financial Holding  vs.  Yuanta Financial Holdings

Cathay Financial Holding

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Cathay Financial Holding are ranked lower than 17 (%) 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.

Yuanta Financial Holdings

Risk-Adjusted Performance

9 of 100

OK

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

Pair Trading with Cathay Financial and Yuanta Financial

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

The idea behind Cathay Financial Holding and Yuanta Financial Holdings 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.