Correlation Between Cathay Chemical and Cleanaway

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

Diversification Opportunities for Cathay Chemical and Cleanaway

0.86

Correlation Coefficient

Cathay Chemical  Cleanaway

Very poor diversification

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

Pair Corralation between Cathay Chemical and Cleanaway

Assuming the 90 days trading horizon Cathay Chemical Works is expected to generate 3.36 times more return on investment than Cleanaway. However, Cathay Chemical is 3.36 times more volatile than Cleanaway Co. It trades about 0.21 of its potential returns per unit of risk. Cleanaway Co is currently generating about 0.29 per unit of risk. If you would invest  4,640  in Cathay Chemical Works on December 25, 2024 and sell it today you would earn a total of  990.00  from holding Cathay Chemical Works or generate 21.34% return on investment over 90 days.

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

Cathay Chemical Works  vs.  Cleanaway Co

Cathay Chemical Works

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Cathay Chemical Works are ranked lower than 16 (%) 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.

Cleanaway

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Cleanaway Co are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Cleanaway may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Cathay Chemical and Cleanaway

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

The idea behind Cathay Chemical Works and Cleanaway 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.