Correlation Between Cathay Financial and WINSON Machinery

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

Diversification Opportunities for Cathay Financial and WINSON Machinery

-0.33

Correlation Coefficient

Cathay Financial  WINSON Machinery

Very good diversification

The 3 months correlation between Cathay and WINSON is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Cathay Financial Holding and WINSON Machinery Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WINSON Machinery 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 WINSON Machinery. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WINSON Machinery has no effect on the direction of Cathay Financial i.e., Cathay Financial and WINSON Machinery go up and down completely randomly.

Pair Corralation between Cathay Financial and WINSON Machinery

Assuming the 90 days trading horizon Cathay Financial Holding is expected to generate 0.42 times more return on investment than WINSON Machinery. However, Cathay Financial Holding is 2.36 times less risky than WINSON Machinery. It trades about 0.13 of its potential returns per unit of risk. WINSON Machinery Co is currently generating about -0.02 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 Against
Strength	Insignificant
Accuracy	95.65%
Values	Daily Returns

Cathay Financial Holding  vs.  WINSON Machinery 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.

WINSON Machinery

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days WINSON Machinery Co 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 Cathay Financial and WINSON Machinery

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

The idea behind Cathay Financial Holding and WINSON Machinery 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.