Correlation Between Cathay General and Dime Community

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

Diversification Opportunities for Cathay General and Dime Community

-0.13

Correlation Coefficient

Cathay General  Dime Community

Good diversification

The 3 months correlation between Cathay and Dime is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding Cathay General Bancorp and Dime Community Bancshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dime Community Bancshares 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 Dime Community. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dime Community Bancshares has no effect on the direction of Cathay General i.e., Cathay General and Dime Community go up and down completely randomly.

Pair Corralation between Cathay General and Dime Community

Given the investment horizon of 90 days Cathay General Bancorp is expected to generate 2.04 times more return on investment than Dime Community. However, Cathay General is 2.04 times more volatile than Dime Community Bancshares. It trades about 0.15 of its potential returns per unit of risk. Dime Community Bancshares is currently generating about 0.02 per unit of risk. If you would invest  4,205  in Cathay General Bancorp on September 13, 2024 and sell it today you would earn a total of  922.00  from holding Cathay General Bancorp or generate 21.93% return on investment over 90 days.

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

Cathay General Bancorp  vs.  Dime Community Bancshares

Cathay General Bancorp

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Cathay General Bancorp are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly inconsistent basic indicators, Cathay General showed solid returns over the last few months and may actually be approaching a breakup point.

Dime Community Bancshares

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Dime Community Bancshares are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable primary indicators, Dime Community is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Cathay General and Dime Community

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

The idea behind Cathay General Bancorp and Dime Community Bancshares 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.

Check out your portfolio center.

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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.