Correlation Between Cathay Financial and JSL Construction

Can any of the company-specific risk be diversified away by investing in both Cathay Financial and JSL 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 Financial and JSL Construction 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 JSL Construction Development, you can compare the effects of market volatilities on Cathay Financial and JSL 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 Financial with a short position of JSL Construction. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cathay Financial and JSL Construction.

Diversification Opportunities for Cathay Financial and JSL Construction

-0.67

Correlation Coefficient

Cathay Financial  JSL Construction

Excellent diversification

The 3 months correlation between Cathay and JSL is -0.67. Overlapping area represents the amount of risk that can be diversified away by holding Cathay Financial Holding and JSL Construction Development in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on JSL Construction Dev 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 JSL Construction. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of JSL Construction Dev has no effect on the direction of Cathay Financial i.e., Cathay Financial and JSL Construction go up and down completely randomly.

Pair Corralation between Cathay Financial and JSL Construction

Assuming the 90 days trading horizon Cathay Financial Holding is expected to generate 0.53 times more return on investment than JSL Construction. However, Cathay Financial Holding is 1.89 times less risky than JSL Construction. It trades about 0.09 of its potential returns per unit of risk. JSL Construction Development is currently generating about -0.2 per unit of risk. If you would invest  6,470  in Cathay Financial Holding on September 20, 2024 and sell it today you would earn a total of  410.00  from holding Cathay Financial Holding or generate 6.34% return on investment over 90 days.

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

Cathay Financial Holding  vs.  JSL Construction Development

Cathay Financial Holding

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Cathay Financial Holding are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Cathay Financial may actually be approaching a critical reversion point that can send shares even higher in January 2025.

JSL Construction Dev

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days JSL Construction Development has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in January 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Pair Trading with Cathay Financial and JSL Construction

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

The idea behind Cathay Financial Holding and JSL Construction Development 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.