Correlation Between China Man and Cathay Chemical
Can any of the company-specific risk be diversified away by investing in both China Man and Cathay Chemical 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 China Man and Cathay Chemical into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between China Man Made Fiber and Cathay Chemical Works, you can compare the effects of market volatilities on China Man and Cathay Chemical 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 China Man with a short position of Cathay Chemical. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Man and Cathay Chemical.
Diversification Opportunities for China Man and Cathay Chemical
0.47 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between China and Cathay is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding China Man Made Fiber and Cathay Chemical Works in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cathay Chemical Works and China Man 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 China Man Made Fiber are associated (or correlated) with Cathay Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cathay Chemical Works has no effect on the direction of China Man i.e., China Man and Cathay Chemical go up and down completely randomly.
Pair Corralation between China Man and Cathay Chemical
Assuming the 90 days trading horizon China Man Made Fiber is expected to generate 0.8 times more return on investment than Cathay Chemical. However, China Man Made Fiber is 1.26 times less risky than Cathay Chemical. It trades about 0.21 of its potential returns per unit of risk. Cathay Chemical Works is currently generating about -0.17 per unit of risk. If you would invest 781.00 in China Man Made Fiber on August 26, 2024 and sell it today you would earn a total of 31.00 from holding China Man Made Fiber or generate 3.97% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
China Man Made Fiber vs. Cathay Chemical Works
Performance |
| Timeline |
| China Man Made |
| Cathay Chemical Works |
China Man and Cathay Chemical Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with China Man and Cathay Chemical
The main advantage of trading using opposite China Man and Cathay Chemical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China Man position performs unexpectedly, Cathay Chemical 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 Chemical will offset losses from the drop in Cathay Chemical's long position.| China Man vs. Cheng Shin Rubber | China Man vs. Taiwan Cement Corp | China Man vs. China Steel Chemical | China Man vs. Yulon Motor Co |
| Cathay Chemical vs. Chung Hwa Chemical | Cathay Chemical vs. China Man Made Fiber | Cathay Chemical vs. Sesoda Corp | Cathay Chemical vs. Everlight Chemical Industrial |
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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