Correlation Between San Fang and Cathay Real
Can any of the company-specific risk be diversified away by investing in both San Fang and Cathay Real 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 San Fang and Cathay Real into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between San Fang Chemical and Cathay Real Estate, you can compare the effects of market volatilities on San Fang and Cathay Real 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 San Fang with a short position of Cathay Real. Check out your portfolio center. Please also check ongoing floating volatility patterns of San Fang and Cathay Real.
Diversification Opportunities for San Fang and Cathay Real
0.4 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between San and Cathay is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding San Fang Chemical and Cathay Real Estate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cathay Real Estate and San Fang 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 San Fang Chemical are associated (or correlated) with Cathay Real. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cathay Real Estate has no effect on the direction of San Fang i.e., San Fang and Cathay Real go up and down completely randomly.
Pair Corralation between San Fang and Cathay Real
Assuming the 90 days trading horizon San Fang Chemical is expected to generate 1.54 times more return on investment than Cathay Real. However, San Fang is 1.54 times more volatile than Cathay Real Estate. It trades about 0.09 of its potential returns per unit of risk. Cathay Real Estate is currently generating about -0.06 per unit of risk. If you would invest 2,890 in San Fang Chemical on November 3, 2024 and sell it today you would earn a total of 915.00 from holding San Fang Chemical or generate 31.66% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
San Fang Chemical vs. Cathay Real Estate
Performance |
| Timeline |
| San Fang Chemical |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
| Cathay Real Estate |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
San Fang and Cathay Real Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with San Fang and Cathay Real
The main advantage of trading using opposite San Fang and Cathay Real positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if San Fang position performs unexpectedly, Cathay Real 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 Real will offset losses from the drop in Cathay Real's long position.The idea behind San Fang Chemical and Cathay Real Estate 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
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