Correlation Between Baotek Industrial and Cathay Consolidated

Can any of the company-specific risk be diversified away by investing in both Baotek Industrial and Cathay Consolidated 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 Baotek Industrial and Cathay Consolidated into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Baotek Industrial Materials and Cathay Consolidated, you can compare the effects of market volatilities on Baotek Industrial and Cathay Consolidated 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 Baotek Industrial with a short position of Cathay Consolidated. Check out your portfolio center. Please also check ongoing floating volatility patterns of Baotek Industrial and Cathay Consolidated.

Diversification Opportunities for Baotek Industrial and Cathay Consolidated

0.33

Correlation Coefficient

Baotek Industrial  Cathay Consolidated

Weak diversification

The 3 months correlation between Baotek and Cathay is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Baotek Industrial Materials and Cathay Consolidated in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cathay Consolidated and Baotek Industrial 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 Baotek Industrial Materials are associated (or correlated) with Cathay Consolidated. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cathay Consolidated has no effect on the direction of Baotek Industrial i.e., Baotek Industrial and Cathay Consolidated go up and down completely randomly.

Pair Corralation between Baotek Industrial and Cathay Consolidated

Assuming the 90 days trading horizon Baotek Industrial Materials is expected to under-perform the Cathay Consolidated. In addition to that, Baotek Industrial is 1.51 times more volatile than Cathay Consolidated. It trades about -0.09 of its total potential returns per unit of risk. Cathay Consolidated is currently generating about 0.1 per unit of volatility. If you would invest  10,100  in Cathay Consolidated on December 5, 2024 and sell it today you would earn a total of  900.00  from holding Cathay Consolidated or generate 8.91% return on investment over 90 days.

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

Baotek Industrial Materials  vs.  Cathay Consolidated

Baotek Industrial

Risk-Adjusted Performance

Very Weak

Over the last 90 days Baotek Industrial Materials has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in April 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Cathay Consolidated

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Cathay Consolidated are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Cathay Consolidated may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Baotek Industrial and Cathay Consolidated

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

The idea behind Baotek Industrial Materials and Cathay Consolidated 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..