Correlation Between Cathay Consolidated and Chung Hsin

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

By analyzing existing cross correlation between Cathay Consolidated and Chung Hsin Electric Machinery, you can compare the effects of market volatilities on Cathay Consolidated and Chung Hsin 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 Consolidated with a short position of Chung Hsin. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cathay Consolidated and Chung Hsin.

Diversification Opportunities for Cathay Consolidated and Chung Hsin

-0.4

Correlation Coefficient

Cathay Consolidated  Chung Hsin

Very good diversification

The 3 months correlation between Cathay and Chung is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Cathay Consolidated and Chung Hsin Electric Machinery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chung Hsin Electric and Cathay Consolidated 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 Consolidated are associated (or correlated) with Chung Hsin. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chung Hsin Electric has no effect on the direction of Cathay Consolidated i.e., Cathay Consolidated and Chung Hsin go up and down completely randomly.

Pair Corralation between Cathay Consolidated and Chung Hsin

Assuming the 90 days trading horizon Cathay Consolidated is expected to generate 1.0 times more return on investment than Chung Hsin. However, Cathay Consolidated is 1.0 times more volatile than Chung Hsin Electric Machinery. It trades about 0.13 of its potential returns per unit of risk. Chung Hsin Electric Machinery is currently generating about -0.07 per unit of risk. If you would invest  9,390  in Cathay Consolidated on September 17, 2024 and sell it today you would earn a total of  1,410  from holding Cathay Consolidated or generate 15.02% return on investment over 90 days.

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

Cathay Consolidated  vs.  Chung Hsin Electric Machinery

Cathay Consolidated

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Cathay Consolidated are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Cathay Consolidated showed solid returns over the last few months and may actually be approaching a breakup point.

Chung Hsin Electric

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Chung Hsin Electric Machinery has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Pair Trading with Cathay Consolidated and Chung Hsin

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

The idea behind Cathay Consolidated and Chung Hsin Electric Machinery 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.