Correlation Between Cathay Chemical and Tze Shin

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

Diversification Opportunities for Cathay Chemical and Tze Shin

0.86

Correlation Coefficient

Cathay Chemical  Tze Shin

Very poor diversification

The 3 months correlation between Cathay and Tze is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Cathay Chemical Works and Tze Shin International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tze Shin International 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 Tze Shin. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tze Shin International has no effect on the direction of Cathay Chemical i.e., Cathay Chemical and Tze Shin go up and down completely randomly.

Pair Corralation between Cathay Chemical and Tze Shin

Assuming the 90 days trading horizon Cathay Chemical Works is expected to generate 0.69 times more return on investment than Tze Shin. However, Cathay Chemical Works is 1.44 times less risky than Tze Shin. It trades about 0.11 of its potential returns per unit of risk. Tze Shin International is currently generating about -0.01 per unit of risk. If you would invest  4,610  in Cathay Chemical Works on October 22, 2024 and sell it today you would earn a total of  105.00  from holding Cathay Chemical Works or generate 2.28% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	95.24%
Values	Daily Returns

Cathay Chemical Works  vs.  Tze Shin International

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 fairly stable basic indicators, Cathay Chemical is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Tze Shin International

Risk-Adjusted Performance

0 of 100

Very Weak

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

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

The idea behind Cathay Chemical Works and Tze Shin International 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.