Correlation Between Cathay Financial and Nan Pao

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

Diversification Opportunities for Cathay Financial and Nan Pao

0.37

Correlation Coefficient

Cathay Financial  Nan Pao

Weak diversification

The 3 months correlation between Cathay and Nan is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Cathay Financial Holding and Nan Pao Resins in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nan Pao Resins 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 Nan Pao. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nan Pao Resins has no effect on the direction of Cathay Financial i.e., Cathay Financial and Nan Pao go up and down completely randomly.

Pair Corralation between Cathay Financial and Nan Pao

Assuming the 90 days trading horizon Cathay Financial is expected to generate 1.01 times less return on investment than Nan Pao. But when comparing it to its historical volatility, Cathay Financial Holding is 6.91 times less risky than Nan Pao. It trades about 0.37 of its potential returns per unit of risk. Nan Pao Resins is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  29,900  in Nan Pao Resins on September 15, 2024 and sell it today you would earn a total of  1,600  from holding Nan Pao Resins or generate 5.35% return on investment over 90 days.

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

Cathay Financial Holding  vs.  Nan Pao Resins

Cathay Financial Holding

Risk-Adjusted Performance

28 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Cathay Financial Holding are ranked lower than 28 (%) 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.

Nan Pao Resins

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Nan Pao Resins are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Nan Pao is not utilizing all of its potentials. The newest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Cathay Financial and Nan Pao

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

The idea behind Cathay Financial Holding and Nan Pao Resins 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.