Correlation Between Cathay General and Columbia Financial

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

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

Diversification Opportunities for Cathay General and Columbia Financial

0.55

Correlation Coefficient

Cathay General  Columbia Financial

Very weak diversification

The 3 months correlation between Cathay and Columbia is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Cathay General Bancorp and Columbia Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Columbia Financial and Cathay General 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 General Bancorp are associated (or correlated) with Columbia Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Columbia Financial has no effect on the direction of Cathay General i.e., Cathay General and Columbia Financial go up and down completely randomly.

Pair Corralation between Cathay General and Columbia Financial

Given the investment horizon of 90 days Cathay General Bancorp is expected to under-perform the Columbia Financial. But the stock apears to be less risky and, when comparing its historical volatility, Cathay General Bancorp is 1.15 times less risky than Columbia Financial. The stock trades about -0.11 of its potential returns per unit of risk. The Columbia Financial is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  1,588  in Columbia Financial on December 28, 2024 and sell it today you would lose (72.00) from holding Columbia Financial or give up 4.53% of portfolio value over 90 days.

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

Cathay General Bancorp  vs.  Columbia Financial

Cathay General Bancorp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Cathay General Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest inconsistent 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.

Columbia Financial

Risk-Adjusted Performance

Very Weak

Over the last 90 days Columbia Financial has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent fundamental drivers, Columbia Financial is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Cathay General and Columbia Financial

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

The idea behind Cathay General Bancorp and Columbia Financial 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.