Correlation Between Eastroc Beverage and Cathay Biotech

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

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

Diversification Opportunities for Eastroc Beverage and Cathay Biotech

-0.74

Correlation Coefficient

Eastroc Beverage  Cathay Biotech

Pay attention - limited upside

The 3 months correlation between Eastroc and Cathay is -0.74. Overlapping area represents the amount of risk that can be diversified away by holding Eastroc Beverage Group and Cathay Biotech in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cathay Biotech and Eastroc Beverage 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 Eastroc Beverage Group are associated (or correlated) with Cathay Biotech. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cathay Biotech has no effect on the direction of Eastroc Beverage i.e., Eastroc Beverage and Cathay Biotech go up and down completely randomly.

Pair Corralation between Eastroc Beverage and Cathay Biotech

Assuming the 90 days trading horizon Eastroc Beverage Group is expected to under-perform the Cathay Biotech. In addition to that, Eastroc Beverage is 1.18 times more volatile than Cathay Biotech. It trades about -0.03 of its total potential returns per unit of risk. Cathay Biotech is currently generating about 0.15 per unit of volatility. If you would invest  3,998  in Cathay Biotech on December 25, 2024 and sell it today you would earn a total of  774.00  from holding Cathay Biotech or generate 19.36% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.28%
Values	Daily Returns

Eastroc Beverage Group  vs.  Cathay Biotech

Eastroc Beverage

Risk-Adjusted Performance

Very Weak

Over the last 90 days Eastroc Beverage Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Eastroc Beverage is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Cathay Biotech

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Cathay Biotech are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Cathay Biotech sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Eastroc Beverage and Cathay Biotech

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

The idea behind Eastroc Beverage Group and Cathay Biotech 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.