Correlation Between Cathay Financial and CKM Building

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

Diversification Opportunities for Cathay Financial and CKM Building

0.51

Correlation Coefficient

Cathay Financial  CKM Building

Very weak diversification

The 3 months correlation between Cathay and CKM is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Cathay Financial Holding and CKM Building Material in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CKM Building Material 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 CKM Building. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CKM Building Material has no effect on the direction of Cathay Financial i.e., Cathay Financial and CKM Building go up and down completely randomly.

Pair Corralation between Cathay Financial and CKM Building

Assuming the 90 days trading horizon Cathay Financial is expected to generate 10.29 times less return on investment than CKM Building. But when comparing it to its historical volatility, Cathay Financial Holding is 14.87 times less risky than CKM Building. It trades about 0.18 of its potential returns per unit of risk. CKM Building Material is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  3,475  in CKM Building Material on October 24, 2024 and sell it today you would earn a total of  115.00  from holding CKM Building Material or generate 3.31% return on investment over 90 days.

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

Cathay Financial Holding  vs.  CKM Building Material

Cathay Financial Holding

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Cathay Financial Holding are ranked lower than 10 (%) 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.

CKM Building Material

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in CKM Building Material are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, CKM Building 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 CKM Building

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

The idea behind Cathay Financial Holding and CKM Building Material 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.