Correlation Between Huaku Development and Cathay Financial

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Can any of the company-specific risk be diversified away by investing in both Huaku Development and Cathay Financial 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 Huaku Development and Cathay Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Huaku Development Co and Cathay Financial Holding, you can compare the effects of market volatilities on Huaku Development and Cathay Financial 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 Huaku Development with a short position of Cathay Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Huaku Development and Cathay Financial.

Diversification Opportunities for Huaku Development and Cathay Financial

-0.77
  Correlation Coefficient

Pay attention - limited upside

The 3 months correlation between Huaku and Cathay is -0.77. Overlapping area represents the amount of risk that can be diversified away by holding Huaku Development Co and Cathay Financial Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cathay Financial Holding and Huaku Development 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 Huaku Development Co are associated (or correlated) with Cathay Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cathay Financial Holding has no effect on the direction of Huaku Development i.e., Huaku Development and Cathay Financial go up and down completely randomly.

Pair Corralation between Huaku Development and Cathay Financial

Assuming the 90 days trading horizon Huaku Development Co is expected to under-perform the Cathay Financial. In addition to that, Huaku Development is 1.62 times more volatile than Cathay Financial Holding. It trades about -0.06 of its total potential returns per unit of risk. Cathay Financial Holding is currently generating about 0.08 per unit of volatility. If you would invest  5,640  in Cathay Financial Holding on September 2, 2024 and sell it today you would earn a total of  930.00  from holding Cathay Financial Holding or generate 16.49% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Huaku Development Co  vs.  Cathay Financial Holding

 Performance 
       Timeline  
Huaku Development 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Huaku Development Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in January 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.
Cathay Financial Holding 

Risk-Adjusted Performance

2 of 100

 
Weak
 
Strong
Weak
Compared to the overall equity markets, risk-adjusted returns on investments in Cathay Financial Holding are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Cathay Financial is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Huaku Development and Cathay Financial Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Huaku Development and Cathay Financial

The main advantage of trading using opposite Huaku Development and Cathay Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Huaku Development position performs unexpectedly, Cathay Financial 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 Financial will offset losses from the drop in Cathay Financial's long position.
The idea behind Huaku Development Co and Cathay Financial Holding 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.

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