Correlation Between Cathay Financial and CHC Healthcare

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

Diversification Opportunities for Cathay Financial and CHC Healthcare

0.11

Correlation Coefficient

Cathay Financial  CHC Healthcare

Average diversification

The 3 months correlation between Cathay and CHC is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding Cathay Financial Holding and CHC Healthcare Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CHC Healthcare Group 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 CHC Healthcare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CHC Healthcare Group has no effect on the direction of Cathay Financial i.e., Cathay Financial and CHC Healthcare go up and down completely randomly.

Pair Corralation between Cathay Financial and CHC Healthcare

Assuming the 90 days trading horizon Cathay Financial Holding is expected to under-perform the CHC Healthcare. But the stock apears to be less risky and, when comparing its historical volatility, Cathay Financial Holding is 1.08 times less risky than CHC Healthcare. The stock trades about -0.05 of its potential returns per unit of risk. The CHC Healthcare Group is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  4,135  in CHC Healthcare Group on October 4, 2024 and sell it today you would earn a total of  10.00  from holding CHC Healthcare Group or generate 0.24% 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.  CHC Healthcare Group

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.

CHC Healthcare Group

Risk-Adjusted Performance

0 of 100

Very Weak

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

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

The idea behind Cathay Financial Holding and CHC Healthcare Group 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.