Correlation Between Cathay Real and Kindom Construction

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

Diversification Opportunities for Cathay Real and Kindom Construction

0.85

Correlation Coefficient

Cathay Real  Kindom Construction

Very poor diversification

The 3 months correlation between Cathay and Kindom is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Cathay Real Estate and Kindom Construction Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kindom Construction Corp 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 Kindom Construction. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kindom Construction Corp has no effect on the direction of Cathay Real i.e., Cathay Real and Kindom Construction go up and down completely randomly.

Pair Corralation between Cathay Real and Kindom Construction

Assuming the 90 days trading horizon Cathay Real Estate is expected to generate 0.67 times more return on investment than Kindom Construction. However, Cathay Real Estate is 1.49 times less risky than Kindom Construction. It trades about -0.01 of its potential returns per unit of risk. Kindom Construction Corp is currently generating about -0.02 per unit of risk. If you would invest  2,510  in Cathay Real Estate on December 5, 2024 and sell it today you would lose (35.00) from holding Cathay Real Estate or give up 1.39% of portfolio value over 90 days.

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

Cathay Real Estate  vs.  Kindom Construction Corp

Cathay Real Estate

Risk-Adjusted Performance

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.

Kindom Construction Corp

Risk-Adjusted Performance

Very Weak

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

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

The idea behind Cathay Real Estate and Kindom Construction Corp 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.