Correlation Between Far Eastern and Cathay Consolidated

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

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

Diversification Opportunities for Far Eastern and Cathay Consolidated

-0.05

Correlation Coefficient

Far Eastern  Cathay Consolidated

Good diversification

The 3 months correlation between Far and Cathay is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding Far Eastern New and Cathay Consolidated in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cathay Consolidated and Far Eastern 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 Far Eastern New are associated (or correlated) with Cathay Consolidated. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cathay Consolidated has no effect on the direction of Far Eastern i.e., Far Eastern and Cathay Consolidated go up and down completely randomly.

Pair Corralation between Far Eastern and Cathay Consolidated

Assuming the 90 days trading horizon Far Eastern New is expected to under-perform the Cathay Consolidated. But the stock apears to be less risky and, when comparing its historical volatility, Far Eastern New is 1.23 times less risky than Cathay Consolidated. The stock trades about -0.05 of its potential returns per unit of risk. The Cathay Consolidated is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  10,100  in Cathay Consolidated on December 5, 2024 and sell it today you would earn a total of  900.00  from holding Cathay Consolidated or generate 8.91% return on investment over 90 days.

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

Far Eastern New  vs.  Cathay Consolidated

Far Eastern New

Risk-Adjusted Performance

Very Weak

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

Cathay Consolidated

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Cathay Consolidated are ranked lower than 7 (%) 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 April 2025.

Pair Trading with Far Eastern and Cathay Consolidated

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

The idea behind Far Eastern New and Cathay Consolidated 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.