Correlation Between Cathay Financial and Mechema Chemicals

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

Diversification Opportunities for Cathay Financial and Mechema Chemicals

-0.43

Correlation Coefficient

Cathay Financial  Mechema Chemicals

Very good diversification

The 3 months correlation between Cathay and Mechema is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding Cathay Financial Holding and Mechema Chemicals Int in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mechema Chemicals Int 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 Mechema Chemicals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mechema Chemicals Int has no effect on the direction of Cathay Financial i.e., Cathay Financial and Mechema Chemicals go up and down completely randomly.

Pair Corralation between Cathay Financial and Mechema Chemicals

Assuming the 90 days trading horizon Cathay Financial Holding is expected to under-perform the Mechema Chemicals. But the stock apears to be less risky and, when comparing its historical volatility, Cathay Financial Holding is 1.87 times less risky than Mechema Chemicals. The stock trades about -0.03 of its potential returns per unit of risk. The Mechema Chemicals Int is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  6,920  in Mechema Chemicals Int on September 5, 2024 and sell it today you would earn a total of  540.00  from holding Mechema Chemicals Int or generate 7.8% return on investment over 90 days.

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

Cathay Financial Holding  vs.  Mechema Chemicals Int

Cathay Financial Holding

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Cathay Financial Holding are ranked lower than 11 (%) 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.

Mechema Chemicals Int

Risk-Adjusted Performance

1 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Mechema Chemicals Int are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Mechema Chemicals 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 Mechema Chemicals

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

The idea behind Cathay Financial Holding and Mechema Chemicals Int 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.