Correlation Between Cathay Consolidated and Ruentex Industries

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

By analyzing existing cross correlation between Cathay Consolidated and Ruentex Industries, you can compare the effects of market volatilities on Cathay Consolidated and Ruentex Industries 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 Ruentex Industries. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cathay Consolidated and Ruentex Industries.

Diversification Opportunities for Cathay Consolidated and Ruentex Industries

-0.25

Correlation Coefficient

Cathay Consolidated  Ruentex Industries

Very good diversification

The 3 months correlation between Cathay and Ruentex is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding Cathay Consolidated and Ruentex Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ruentex Industries 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 Ruentex Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ruentex Industries has no effect on the direction of Cathay Consolidated i.e., Cathay Consolidated and Ruentex Industries go up and down completely randomly.

Pair Corralation between Cathay Consolidated and Ruentex Industries

Assuming the 90 days trading horizon Cathay Consolidated is expected to generate 1.44 times more return on investment than Ruentex Industries. However, Cathay Consolidated is 1.44 times more volatile than Ruentex Industries. It trades about 0.13 of its potential returns per unit of risk. Ruentex Industries is currently generating about -0.03 per unit of risk. If you would invest  10,000  in Cathay Consolidated on September 15, 2024 and sell it today you would earn a total of  550.00  from holding Cathay Consolidated or generate 5.5% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.65%
Values	Daily Returns

Cathay Consolidated  vs.  Ruentex Industries

Cathay Consolidated

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Cathay Consolidated are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Cathay Consolidated may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Ruentex Industries

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Cathay Consolidated and Ruentex Industries

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

The idea behind Cathay Consolidated and Ruentex Industries 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.