Correlation Between Cathay Chemical and Shihlin Electric

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

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

Diversification Opportunities for Cathay Chemical and Shihlin Electric

0.87

Correlation Coefficient

Cathay Chemical  Shihlin Electric

Very poor diversification

The 3 months correlation between Cathay and Shihlin is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Cathay Chemical Works and Shihlin Electric Engineering in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shihlin Electric Eng and Cathay Chemical 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 Chemical Works are associated (or correlated) with Shihlin Electric. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shihlin Electric Eng has no effect on the direction of Cathay Chemical i.e., Cathay Chemical and Shihlin Electric go up and down completely randomly.

Pair Corralation between Cathay Chemical and Shihlin Electric

Assuming the 90 days trading horizon Cathay Chemical Works is expected to under-perform the Shihlin Electric. But the stock apears to be less risky and, when comparing its historical volatility, Cathay Chemical Works is 2.22 times less risky than Shihlin Electric. The stock trades about -0.22 of its potential returns per unit of risk. The Shihlin Electric Engineering is currently generating about -0.07 of returns per unit of risk over similar time horizon. If you would invest  21,300  in Shihlin Electric Engineering on September 16, 2024 and sell it today you would lose (2,150) from holding Shihlin Electric Engineering or give up 10.09% of portfolio value over 90 days.

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

Cathay Chemical Works  vs.  Shihlin Electric Engineering

Cathay Chemical Works

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Cathay Chemical Works 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.

Shihlin Electric Eng

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Shihlin Electric Engineering 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 Chemical and Shihlin Electric

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

The idea behind Cathay Chemical Works and Shihlin Electric Engineering 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..