Correlation Between Cathay Biotech and Shandong Gold

Can any of the company-specific risk be diversified away by investing in both Cathay Biotech and Shandong Gold 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 Gold 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 Gold Mining, you can compare the effects of market volatilities on Cathay Biotech and Shandong Gold 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 Gold. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cathay Biotech and Shandong Gold.

Diversification Opportunities for Cathay Biotech and Shandong Gold

0.02

Correlation Coefficient

Cathay Biotech  Shandong Gold

Significant diversification

The 3 months correlation between Cathay and Shandong is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Cathay Biotech and Shandong Gold Mining in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shandong Gold Mining 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 Gold. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shandong Gold Mining has no effect on the direction of Cathay Biotech i.e., Cathay Biotech and Shandong Gold go up and down completely randomly.

Pair Corralation between Cathay Biotech and Shandong Gold

Assuming the 90 days trading horizon Cathay Biotech is expected to under-perform the Shandong Gold. In addition to that, Cathay Biotech is 1.25 times more volatile than Shandong Gold Mining. It trades about -0.22 of its total potential returns per unit of risk. Shandong Gold Mining is currently generating about -0.22 per unit of volatility. If you would invest  2,523  in Shandong Gold Mining on September 20, 2024 and sell it today you would lose (163.00) from holding Shandong Gold Mining or give up 6.46% of portfolio value over 90 days.

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

Cathay Biotech  vs.  Shandong Gold Mining

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.

Shandong Gold Mining

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Shandong Gold Mining has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Cathay Biotech and Shandong Gold

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

The idea behind Cathay Biotech and Shandong Gold Mining 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 Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.