Correlation Between Cathay Real and New Asia

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

By analyzing existing cross correlation between Cathay Real Estate and New Asia Construction, you can compare the effects of market volatilities on Cathay Real and New Asia 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 Real with a short position of New Asia. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cathay Real and New Asia.

Diversification Opportunities for Cathay Real and New Asia

0.19

Correlation Coefficient

Cathay Real  New Asia

Average diversification

The 3 months correlation between Cathay and New is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding Cathay Real Estate and New Asia Construction in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on New Asia Construction and Cathay Real 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 Real Estate are associated (or correlated) with New Asia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of New Asia Construction has no effect on the direction of Cathay Real i.e., Cathay Real and New Asia go up and down completely randomly.

Pair Corralation between Cathay Real and New Asia

Assuming the 90 days trading horizon Cathay Real Estate is expected to under-perform the New Asia. But the stock apears to be less risky and, when comparing its historical volatility, Cathay Real Estate is 1.09 times less risky than New Asia. The stock trades about -0.31 of its potential returns per unit of risk. The New Asia Construction is currently generating about -0.28 of returns per unit of risk over similar time horizon. If you would invest  1,375  in New Asia Construction on September 25, 2024 and sell it today you would lose (135.00) from holding New Asia Construction or give up 9.82% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

Cathay Real Estate  vs.  New Asia Construction

Cathay Real Estate

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Cathay Real Estate has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Cathay Real is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

New Asia Construction

Risk-Adjusted Performance

3 of 100

Insignificant

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

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

The idea behind Cathay Real Estate and New Asia Construction 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.