Correlation Between Cathay Financial and Ten Ren

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

Diversification Opportunities for Cathay Financial and Ten Ren

-0.79

Correlation Coefficient

Cathay Financial  Ten Ren

Pay attention - limited upside

The 3 months correlation between Cathay and Ten is -0.79. Overlapping area represents the amount of risk that can be diversified away by holding Cathay Financial Holding and Ten Ren Tea in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ten Ren Tea 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 Ten Ren. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ten Ren Tea has no effect on the direction of Cathay Financial i.e., Cathay Financial and Ten Ren go up and down completely randomly.

Pair Corralation between Cathay Financial and Ten Ren

Assuming the 90 days trading horizon Cathay Financial is expected to generate 3.14 times less return on investment than Ten Ren. But when comparing it to its historical volatility, Cathay Financial Holding is 9.47 times less risky than Ten Ren. It trades about 0.22 of its potential returns per unit of risk. Ten Ren Tea is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  2,975  in Ten Ren Tea on October 26, 2024 and sell it today you would earn a total of  30.00  from holding Ten Ren Tea or generate 1.01% 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.  Ten Ren Tea

Cathay Financial Holding

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Cathay Financial Holding are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Cathay Financial is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Ten Ren Tea

Risk-Adjusted Performance

0 of 100

Very Weak

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

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

The idea behind Cathay Financial Holding and Ten Ren Tea 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.