Correlation Between Cathay Financial and Southeast Cement

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

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

Diversification Opportunities for Cathay Financial and Southeast Cement

0.14

Correlation Coefficient

Cathay Financial  Southeast Cement

Average diversification

The 3 months correlation between Cathay and Southeast is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding Cathay Financial Holding and Southeast Cement Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Southeast Cement and Cathay Financial 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 Financial Holding are associated (or correlated) with Southeast Cement. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Southeast Cement has no effect on the direction of Cathay Financial i.e., Cathay Financial and Southeast Cement go up and down completely randomly.

Pair Corralation between Cathay Financial and Southeast Cement

Assuming the 90 days trading horizon Cathay Financial Holding is expected to generate 1.0 times more return on investment than Southeast Cement. However, Cathay Financial is 1.0 times more volatile than Southeast Cement Co. It trades about 0.13 of its potential returns per unit of risk. Southeast Cement Co is currently generating about 0.01 per unit of risk. If you would invest  6,650  in Cathay Financial Holding on September 28, 2024 and sell it today you would earn a total of  220.00  from holding Cathay Financial Holding or generate 3.31% return on investment over 90 days.

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

Cathay Financial Holding  vs.  Southeast Cement Co

Cathay Financial Holding

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Cathay Financial Holding are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Cathay Financial is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Southeast Cement

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Southeast Cement Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Southeast Cement 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 Financial and Southeast Cement

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

The idea behind Cathay Financial Holding and Southeast Cement 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..