Correlation Between BES Engineering and Cathay Real

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

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

Diversification Opportunities for BES Engineering and Cathay Real

0.78

Correlation Coefficient

BES Engineering  Cathay Real

Poor diversification

The 3 months correlation between BES and Cathay is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding BES Engineering Co and Cathay Real Estate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cathay Real Estate and BES Engineering 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 BES Engineering Co are associated (or correlated) with Cathay Real. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cathay Real Estate has no effect on the direction of BES Engineering i.e., BES Engineering and Cathay Real go up and down completely randomly.

Pair Corralation between BES Engineering and Cathay Real

Assuming the 90 days trading horizon BES Engineering Co is expected to generate 1.85 times more return on investment than Cathay Real. However, BES Engineering is 1.85 times more volatile than Cathay Real Estate. It trades about -0.03 of its potential returns per unit of risk. Cathay Real Estate is currently generating about -0.15 per unit of risk. If you would invest  1,080  in BES Engineering Co on October 20, 2024 and sell it today you would lose (20.00) from holding BES Engineering Co or give up 1.85% of portfolio value over 90 days.

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

BES Engineering Co  vs.  Cathay Real Estate

BES Engineering

Risk-Adjusted Performance

0 of 100

Very Weak

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

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 latest abnormal performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Pair Trading with BES Engineering and Cathay Real

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

The idea behind BES Engineering Co and Cathay Real Estate 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.