Correlation Between Sun Max and Cathay Financial

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

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

Diversification Opportunities for Sun Max and Cathay Financial

0.7

Correlation Coefficient

Sun Max  Cathay Financial

Poor diversification

The 3 months correlation between Sun and Cathay is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Sun Max Tech 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 Sun Max 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 Sun Max Tech 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 Sun Max i.e., Sun Max and Cathay Financial go up and down completely randomly.

Pair Corralation between Sun Max and Cathay Financial

Assuming the 90 days trading horizon Sun Max is expected to generate 1.37 times less return on investment than Cathay Financial. In addition to that, Sun Max is 7.45 times more volatile than Cathay Financial Holding. It trades about 0.04 of its total potential returns per unit of risk. Cathay Financial Holding is currently generating about 0.37 per unit of volatility. If you would invest  5,650  in Cathay Financial Holding on September 14, 2024 and sell it today you would earn a total of  360.00  from holding Cathay Financial Holding or generate 6.37% return on investment over 90 days.

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

Sun Max Tech  vs.  Cathay Financial Holding

Sun Max Tech

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Sun Max Tech are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Sun Max is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Cathay Financial Holding

Risk-Adjusted Performance

29 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Cathay Financial Holding are ranked lower than 29 (%) 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 Sun Max and Cathay Financial

The main advantage of trading using opposite Sun Max and Cathay Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sun Max 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 Sun Max Tech 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.