Correlation Between Cathay Chemical and Yulon
Can any of the company-specific risk be diversified away by investing in both Cathay Chemical and Yulon 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 Chemical and Yulon into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Cathay Chemical Works and Yulon Motor Co, you can compare the effects of market volatilities on Cathay Chemical and Yulon 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 Chemical with a short position of Yulon. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cathay Chemical and Yulon.
Diversification Opportunities for Cathay Chemical and Yulon
-0.24 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Cathay and Yulon is -0.24. Overlapping area represents the amount of risk that can be diversified away by holding Cathay Chemical Works and Yulon Motor Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Yulon Motor and Cathay Chemical 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 Chemical Works are associated (or correlated) with Yulon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Yulon Motor has no effect on the direction of Cathay Chemical i.e., Cathay Chemical and Yulon go up and down completely randomly.
Pair Corralation between Cathay Chemical and Yulon
Assuming the 90 days trading horizon Cathay Chemical Works is expected to under-perform the Yulon. But the stock apears to be less risky and, when comparing its historical volatility, Cathay Chemical Works is 2.1 times less risky than Yulon. The stock trades about -0.29 of its potential returns per unit of risk. The Yulon Motor Co is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest 5,730 in Yulon Motor Co on August 31, 2024 and sell it today you would lose (180.00) from holding Yulon Motor Co or give up 3.14% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Cathay Chemical Works vs. Yulon Motor Co
Performance |
| Timeline |
| Cathay Chemical Works |
| Yulon Motor |
Cathay Chemical and Yulon Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Cathay Chemical and Yulon
The main advantage of trading using opposite Cathay Chemical and Yulon positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cathay Chemical position performs unexpectedly, Yulon 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 Yulon will offset losses from the drop in Yulon's long position.| Cathay Chemical vs. Chung Hwa Chemical | Cathay Chemical vs. China Man Made Fiber | Cathay Chemical vs. Sesoda Corp | Cathay Chemical vs. Everlight Chemical Industrial |
| Yulon vs. China Motor Corp | Yulon vs. China Steel Corp | Yulon vs. Nan Ya Plastics | Yulon vs. Chang Hwa Commercial |
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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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