Correlation Between Cathay Chemical and Fortune Electric

Can any of the company-specific risk be diversified away by investing in both Cathay Chemical and Fortune 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 Fortune 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 Fortune Electric Co, you can compare the effects of market volatilities on Cathay Chemical and Fortune 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 Fortune Electric. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cathay Chemical and Fortune Electric.

Diversification Opportunities for Cathay Chemical and Fortune Electric

0.33

Correlation Coefficient

Cathay Chemical  Fortune Electric

Weak diversification

The 3 months correlation between Cathay and Fortune is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Cathay Chemical Works and Fortune Electric Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fortune Electric 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 Fortune Electric. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fortune Electric has no effect on the direction of Cathay Chemical i.e., Cathay Chemical and Fortune Electric go up and down completely randomly.

Pair Corralation between Cathay Chemical and Fortune Electric

Assuming the 90 days trading horizon Cathay Chemical is expected to generate 1.18 times less return on investment than Fortune Electric. But when comparing it to its historical volatility, Cathay Chemical Works is 1.52 times less risky than Fortune Electric. It trades about 0.27 of its potential returns per unit of risk. Fortune Electric Co is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  53,800  in Fortune Electric Co on December 5, 2024 and sell it today you would earn a total of  7,200  from holding Fortune Electric Co or generate 13.38% return on investment over 90 days.

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

Cathay Chemical Works  vs.  Fortune Electric Co

Cathay Chemical Works

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Cathay Chemical Works are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Cathay Chemical showed solid returns over the last few months and may actually be approaching a breakup point.

Fortune Electric

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Fortune Electric Co are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Fortune Electric may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Cathay Chemical and Fortune Electric

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

The idea behind Cathay Chemical Works and Fortune Electric Co 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.