Correlation Between Paradigm and Cathay Sustainability

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

By analyzing existing cross correlation between Paradigm SP GSCI and Cathay Sustainability High, you can compare the effects of market volatilities on Paradigm and Cathay Sustainability 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 Paradigm with a short position of Cathay Sustainability. Check out your portfolio center. Please also check ongoing floating volatility patterns of Paradigm and Cathay Sustainability.

Diversification Opportunities for Paradigm and Cathay Sustainability

0.02

Correlation Coefficient

Paradigm  Cathay Sustainability

Significant diversification

The 3 months correlation between Paradigm and Cathay is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Paradigm SP GSCI and Cathay Sustainability High in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cathay Sustainability and Paradigm 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 Paradigm SP GSCI are associated (or correlated) with Cathay Sustainability. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cathay Sustainability has no effect on the direction of Paradigm i.e., Paradigm and Cathay Sustainability go up and down completely randomly.

Pair Corralation between Paradigm and Cathay Sustainability

Assuming the 90 days trading horizon Paradigm SP GSCI is expected to generate 3.31 times more return on investment than Cathay Sustainability. However, Paradigm is 3.31 times more volatile than Cathay Sustainability High. It trades about 0.08 of its potential returns per unit of risk. Cathay Sustainability High is currently generating about -0.03 per unit of risk. If you would invest  1,347  in Paradigm SP GSCI on October 15, 2024 and sell it today you would earn a total of  139.00  from holding Paradigm SP GSCI or generate 10.32% return on investment over 90 days.

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

Paradigm SP GSCI  vs.  Cathay Sustainability High

Paradigm SP GSCI

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Paradigm SP GSCI are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Paradigm may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Cathay Sustainability

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Cathay Sustainability High has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Cathay Sustainability is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Paradigm and Cathay Sustainability

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

The idea behind Paradigm SP GSCI and Cathay Sustainability High 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.