Correlation Between Cathay Consolidated and Baotek Industrial

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

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

Diversification Opportunities for Cathay Consolidated and Baotek Industrial

-0.31

Correlation Coefficient

Cathay Consolidated  Baotek Industrial

Very good diversification

The 3 months correlation between Cathay and Baotek is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Cathay Consolidated and Baotek Industrial Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Baotek Industrial 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 Baotek Industrial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Baotek Industrial has no effect on the direction of Cathay Consolidated i.e., Cathay Consolidated and Baotek Industrial go up and down completely randomly.

Pair Corralation between Cathay Consolidated and Baotek Industrial

Assuming the 90 days trading horizon Cathay Consolidated is expected to generate 0.61 times more return on investment than Baotek Industrial. However, Cathay Consolidated is 1.64 times less risky than Baotek Industrial. It trades about 0.13 of its potential returns per unit of risk. Baotek Industrial Materials is currently generating about -0.03 per unit of risk. If you would invest  9,430  in Cathay Consolidated on September 16, 2024 and sell it today you would earn a total of  1,370  from holding Cathay Consolidated or generate 14.53% return on investment over 90 days.

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

Cathay Consolidated  vs.  Baotek Industrial Materials

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.

Baotek Industrial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Baotek Industrial Materials has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Baotek Industrial 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 Baotek Industrial

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

The idea behind Cathay Consolidated and Baotek Industrial Materials 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.