Correlation Between Cathay Financial and Newretail

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

Diversification Opportunities for Cathay Financial and Newretail

0.77

Correlation Coefficient

Cathay Financial  Newretail

Poor diversification

The 3 months correlation between Cathay and Newretail is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Cathay Financial Holding and Newretail Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Newretail 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 Newretail. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Newretail has no effect on the direction of Cathay Financial i.e., Cathay Financial and Newretail go up and down completely randomly.

Pair Corralation between Cathay Financial and Newretail

Assuming the 90 days trading horizon Cathay Financial is expected to generate 9.08 times less return on investment than Newretail. But when comparing it to its historical volatility, Cathay Financial Holding is 15.27 times less risky than Newretail. It trades about 0.37 of its potential returns per unit of risk. Newretail Co is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  1,470  in Newretail Co on September 14, 2024 and sell it today you would earn a total of  980.00  from holding Newretail Co or generate 66.67% return on investment over 90 days.

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

Cathay Financial Holding  vs.  Newretail Co

Cathay Financial Holding

Risk-Adjusted Performance

29 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Cathay Financial Holding are ranked lower than 29 (%) 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.

Newretail

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Newretail Co are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Newretail showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Cathay Financial and Newretail

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

The idea behind Cathay Financial Holding and Newretail 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.

Check out your portfolio center.

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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.