Correlation Between Cathay Biotech and Jiangxi Ganfeng

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

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

Diversification Opportunities for Cathay Biotech and Jiangxi Ganfeng

0.67

Correlation Coefficient

Cathay Biotech  Jiangxi Ganfeng

Poor diversification

The 3 months correlation between Cathay and Jiangxi is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Cathay Biotech and Jiangxi Ganfeng Lithium in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Jiangxi Ganfeng Lithium and Cathay Biotech 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 Biotech are associated (or correlated) with Jiangxi Ganfeng. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Jiangxi Ganfeng Lithium has no effect on the direction of Cathay Biotech i.e., Cathay Biotech and Jiangxi Ganfeng go up and down completely randomly.

Pair Corralation between Cathay Biotech and Jiangxi Ganfeng

Assuming the 90 days trading horizon Cathay Biotech is expected to generate 1.1 times less return on investment than Jiangxi Ganfeng. But when comparing it to its historical volatility, Cathay Biotech is 1.09 times less risky than Jiangxi Ganfeng. It trades about 0.03 of its potential returns per unit of risk. Jiangxi Ganfeng Lithium is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  3,474  in Jiangxi Ganfeng Lithium on September 20, 2024 and sell it today you would earn a total of  194.00  from holding Jiangxi Ganfeng Lithium or generate 5.58% return on investment over 90 days.

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

Cathay Biotech  vs.  Jiangxi Ganfeng Lithium

Cathay Biotech

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Cathay Biotech are ranked lower than 9 (%) 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.

Jiangxi Ganfeng Lithium

Risk-Adjusted Performance

12 of 100

Good

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

Pair Trading with Cathay Biotech and Jiangxi Ganfeng

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

The idea behind Cathay Biotech and Jiangxi Ganfeng Lithium 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.