Correlation Between ITEQ Corp and Cathay Financial

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

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

Diversification Opportunities for ITEQ Corp and Cathay Financial

0.38

Correlation Coefficient

ITEQ Corp  Cathay Financial

Weak diversification

The 3 months correlation between ITEQ and Cathay is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding ITEQ Corp and Cathay Financial Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cathay Financial Holding and ITEQ Corp 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 ITEQ Corp are associated (or correlated) with Cathay Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cathay Financial Holding has no effect on the direction of ITEQ Corp i.e., ITEQ Corp and Cathay Financial go up and down completely randomly.

Pair Corralation between ITEQ Corp and Cathay Financial

Assuming the 90 days trading horizon ITEQ Corp is expected to generate 11.54 times more return on investment than Cathay Financial. However, ITEQ Corp is 11.54 times more volatile than Cathay Financial Holding. It trades about 0.07 of its potential returns per unit of risk. Cathay Financial Holding is currently generating about 0.13 per unit of risk. If you would invest  7,210  in ITEQ Corp on September 17, 2024 and sell it today you would earn a total of  550.00  from holding ITEQ Corp or generate 7.63% return on investment over 90 days.

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

ITEQ Corp  vs.  Cathay Financial Holding

ITEQ Corp

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in ITEQ Corp are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, ITEQ Corp may actually be approaching a critical reversion point that can send shares even higher in January 2025.

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.

Pair Trading with ITEQ Corp and Cathay Financial

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

The idea behind ITEQ Corp and Cathay Financial Holding 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.