Correlation Between Cathay Biotech and Shandong Longda

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

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

Diversification Opportunities for Cathay Biotech and Shandong Longda

-0.21

Correlation Coefficient

Cathay Biotech  Shandong Longda

Very good diversification

The 3 months correlation between Cathay and Shandong is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding Cathay Biotech and Shandong Longda Meat in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shandong Longda Meat 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 Shandong Longda. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shandong Longda Meat has no effect on the direction of Cathay Biotech i.e., Cathay Biotech and Shandong Longda go up and down completely randomly.

Pair Corralation between Cathay Biotech and Shandong Longda

Assuming the 90 days trading horizon Cathay Biotech is expected to under-perform the Shandong Longda. In addition to that, Cathay Biotech is 1.28 times more volatile than Shandong Longda Meat. It trades about -0.02 of its total potential returns per unit of risk. Shandong Longda Meat is currently generating about -0.02 per unit of volatility. If you would invest  771.00  in Shandong Longda Meat on October 21, 2024 and sell it today you would lose (110.00) from holding Shandong Longda Meat or give up 14.27% 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.  Shandong Longda Meat

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.

Shandong Longda Meat

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Cathay Biotech and Shandong Longda

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

The idea behind Cathay Biotech and Shandong Longda Meat 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.