Correlation Between Cathay Chemical and Hong Tai

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

Diversification Opportunities for Cathay Chemical and Hong Tai

-0.37

Correlation Coefficient

Cathay Chemical  Hong Tai

Very good diversification

The 3 months correlation between Cathay and Hong is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Cathay Chemical Works and Hong Tai Electric in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hong Tai 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 Hong Tai. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hong Tai Electric has no effect on the direction of Cathay Chemical i.e., Cathay Chemical and Hong Tai go up and down completely randomly.

Pair Corralation between Cathay Chemical and Hong Tai

Assuming the 90 days trading horizon Cathay Chemical is expected to generate 2.16 times less return on investment than Hong Tai. But when comparing it to its historical volatility, Cathay Chemical Works is 1.12 times less risky than Hong Tai. It trades about 0.03 of its potential returns per unit of risk. Hong Tai Electric is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  2,745  in Hong Tai Electric on September 15, 2024 and sell it today you would earn a total of  700.00  from holding Hong Tai Electric or generate 25.5% return on investment over 90 days.

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

Cathay Chemical Works  vs.  Hong Tai Electric

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 weak performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in January 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Hong Tai Electric

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Hong Tai Electric are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Hong Tai 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 Chemical and Hong Tai

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

The idea behind Cathay Chemical Works and Hong Tai Electric 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.