Correlation Between Cathay Financial and Phytohealth Corp

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

Diversification Opportunities for Cathay Financial and Phytohealth Corp

-0.34

Correlation Coefficient

Cathay Financial  Phytohealth Corp

Very good diversification

The 3 months correlation between Cathay and Phytohealth is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding Cathay Financial Holding and Phytohealth Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Phytohealth Corp 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 Phytohealth Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Phytohealth Corp has no effect on the direction of Cathay Financial i.e., Cathay Financial and Phytohealth Corp go up and down completely randomly.

Pair Corralation between Cathay Financial and Phytohealth Corp

Assuming the 90 days trading horizon Cathay Financial is expected to generate 13.13 times less return on investment than Phytohealth Corp. But when comparing it to its historical volatility, Cathay Financial Holding is 9.68 times less risky than Phytohealth Corp. It trades about 0.04 of its potential returns per unit of risk. Phytohealth Corp is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  1,670  in Phytohealth Corp on October 6, 2024 and sell it today you would earn a total of  30.00  from holding Phytohealth Corp or generate 1.8% return on investment over 90 days.

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

Cathay Financial Holding  vs.  Phytohealth Corp

Cathay Financial Holding

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Cathay Financial Holding are ranked lower than 20 (%) 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.

Phytohealth Corp

Risk-Adjusted Performance

0 of 100

Very Weak

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

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

The idea behind Cathay Financial Holding and Phytohealth Corp 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.