Correlation Between Cathay Real and BES Engineering
Can any of the company-specific risk be diversified away by investing in both Cathay Real and BES Engineering 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 Real and BES Engineering into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Cathay Real Estate and BES Engineering Co, you can compare the effects of market volatilities on Cathay Real and BES Engineering 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 Real with a short position of BES Engineering. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cathay Real and BES Engineering.
Diversification Opportunities for Cathay Real and BES Engineering
0.8 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Cathay and BES is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Cathay Real Estate and BES Engineering Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BES Engineering and Cathay Real 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 Real Estate are associated (or correlated) with BES Engineering. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BES Engineering has no effect on the direction of Cathay Real i.e., Cathay Real and BES Engineering go up and down completely randomly.
Pair Corralation between Cathay Real and BES Engineering
Assuming the 90 days trading horizon Cathay Real Estate is expected to under-perform the BES Engineering. But the stock apears to be less risky and, when comparing its historical volatility, Cathay Real Estate is 2.82 times less risky than BES Engineering. The stock trades about -0.28 of its potential returns per unit of risk. The BES Engineering Co is currently generating about -0.09 of returns per unit of risk over similar time horizon. If you would invest 1,085 in BES Engineering Co on November 3, 2024 and sell it today you would lose (40.00) from holding BES Engineering Co or give up 3.69% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Cathay Real Estate vs. BES Engineering Co
Performance |
| Timeline |
| Cathay Real Estate |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
| BES Engineering |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
Cathay Real and BES Engineering Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Cathay Real and BES Engineering
The main advantage of trading using opposite Cathay Real and BES Engineering positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cathay Real position performs unexpectedly, BES Engineering 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 BES Engineering will offset losses from the drop in BES Engineering's long position.The idea behind Cathay Real Estate and BES Engineering Co 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..
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