Correlation Between Dime Community and Cathay General

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

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

Diversification Opportunities for Dime Community and Cathay General

-0.24

Correlation Coefficient

Dime Community  Cathay General

Very good diversification

The 3 months correlation between Dime and Cathay is -0.24. Overlapping area represents the amount of risk that can be diversified away by holding Dime Community Bancshares and Cathay General Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cathay General Bancorp and Dime Community 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 Dime Community Bancshares are associated (or correlated) with Cathay General. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cathay General Bancorp has no effect on the direction of Dime Community i.e., Dime Community and Cathay General go up and down completely randomly.

Pair Corralation between Dime Community and Cathay General

Assuming the 90 days horizon Dime Community Bancshares is expected to under-perform the Cathay General. In addition to that, Dime Community is 1.21 times more volatile than Cathay General Bancorp. It trades about -0.13 of its total potential returns per unit of risk. Cathay General Bancorp is currently generating about -0.03 per unit of volatility. If you would invest  5,133  in Cathay General Bancorp on September 14, 2024 and sell it today you would lose (38.00) from holding Cathay General Bancorp or give up 0.74% of portfolio value over 90 days.

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

Dime Community Bancshares  vs.  Cathay General Bancorp

Dime Community Bancshares

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days Dime Community Bancshares has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Cathay General Bancorp

Risk-Adjusted Performance

10 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Cathay General Bancorp are ranked lower than 10 (%) 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.

Pair Trading with Dime Community and Cathay General

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

The idea behind Dime Community Bancshares and Cathay General Bancorp 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.