Correlation Between Cathay Biotech and Chengdu Xinzhu

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

By analyzing existing cross correlation between Cathay Biotech and Chengdu Xinzhu RoadBridge, you can compare the effects of market volatilities on Cathay Biotech and Chengdu Xinzhu 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 Chengdu Xinzhu. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cathay Biotech and Chengdu Xinzhu.

Diversification Opportunities for Cathay Biotech and Chengdu Xinzhu

-0.34

Correlation Coefficient

Cathay Biotech  Chengdu Xinzhu

Very good diversification

The 3 months correlation between Cathay and Chengdu is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding Cathay Biotech and Chengdu Xinzhu RoadBridge in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chengdu Xinzhu RoadBridge 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 Chengdu Xinzhu. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chengdu Xinzhu RoadBridge has no effect on the direction of Cathay Biotech i.e., Cathay Biotech and Chengdu Xinzhu go up and down completely randomly.

Pair Corralation between Cathay Biotech and Chengdu Xinzhu

Assuming the 90 days trading horizon Cathay Biotech is expected to under-perform the Chengdu Xinzhu. But the stock apears to be less risky and, when comparing its historical volatility, Cathay Biotech is 1.7 times less risky than Chengdu Xinzhu. The stock trades about -0.2 of its potential returns per unit of risk. The Chengdu Xinzhu RoadBridge is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  508.00  in Chengdu Xinzhu RoadBridge on October 7, 2024 and sell it today you would lose (43.00) from holding Chengdu Xinzhu RoadBridge or give up 8.46% of portfolio value over 90 days.

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

Cathay Biotech  vs.  Chengdu Xinzhu RoadBridge

Cathay Biotech

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Cathay Biotech has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Chengdu Xinzhu RoadBridge

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Chengdu Xinzhu RoadBridge are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Chengdu Xinzhu may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Cathay Biotech and Chengdu Xinzhu

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

The idea behind Cathay Biotech and Chengdu Xinzhu RoadBridge 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.