Correlation Between Vanguard International and Cathay Financial

Can any of the company-specific risk be diversified away by investing in both Vanguard International and Cathay 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 Vanguard International and Cathay Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Vanguard International Semiconductor and Cathay Financial Holding, you can compare the effects of market volatilities on Vanguard International and Cathay 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 Vanguard International with a short position of Cathay Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard International and Cathay Financial.

Diversification Opportunities for Vanguard International and Cathay Financial

0.3

Correlation Coefficient

Vanguard International  Cathay Financial

Weak diversification

The 3 months correlation between Vanguard and Cathay is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard International Semicon and Cathay Financial Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cathay Financial Holding and Vanguard International 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 Vanguard International Semiconductor are associated (or correlated) with Cathay Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cathay Financial Holding has no effect on the direction of Vanguard International i.e., Vanguard International and Cathay Financial go up and down completely randomly.

Pair Corralation between Vanguard International and Cathay Financial

Assuming the 90 days trading horizon Vanguard International Semiconductor is expected to under-perform the Cathay Financial. In addition to that, Vanguard International is 13.53 times more volatile than Cathay Financial Holding. It trades about -0.07 of its total potential returns per unit of risk. Cathay Financial Holding is currently generating about -0.05 per unit of volatility. If you would invest  6,110  in Cathay Financial Holding on October 21, 2024 and sell it today you would lose (10.00) from holding Cathay Financial Holding or give up 0.16% of portfolio value over 90 days.

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

Vanguard International Semicon  vs.  Cathay Financial Holding

Vanguard International

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vanguard International Semiconductor has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Vanguard International is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

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 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.

Pair Trading with Vanguard International and Cathay Financial

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

The idea behind Vanguard International Semiconductor and Cathay 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.