Correlation Between Cathay Financial and Taishin Financial

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

Diversification Opportunities for Cathay Financial and Taishin Financial

0.43

Correlation Coefficient

Cathay Financial  Taishin Financial

Very weak diversification

The 3 months correlation between Cathay and Taishin is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Cathay Financial Holding and Taishin Financial Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Taishin Financial Holding 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 Taishin Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Taishin Financial Holding has no effect on the direction of Cathay Financial i.e., Cathay Financial and Taishin Financial go up and down completely randomly.

Pair Corralation between Cathay Financial and Taishin Financial

Assuming the 90 days trading horizon Cathay Financial is expected to generate 3.42 times less return on investment than Taishin Financial. In addition to that, Cathay Financial is 1.28 times more volatile than Taishin Financial Holding. It trades about 0.04 of its total potential returns per unit of risk. Taishin Financial Holding is currently generating about 0.16 per unit of volatility. If you would invest  5,120  in Taishin Financial Holding on October 8, 2024 and sell it today you would earn a total of  30.00  from holding Taishin Financial Holding or generate 0.59% return on investment over 90 days.

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

Cathay Financial Holding  vs.  Taishin Financial Holding

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.

Taishin Financial Holding

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Taishin Financial Holding are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Taishin Financial is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Cathay Financial and Taishin Financial

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

The idea behind Cathay Financial Holding and Taishin Financial Holding 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.