Correlation Between Cathay Financial and Brighten Optix
Can any of the company-specific risk be diversified away by investing in both Cathay Financial and Brighten Optix 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 Financial and Brighten Optix into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Cathay Financial Holding and Brighten Optix, you can compare the effects of market volatilities on Cathay Financial and Brighten Optix 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 Financial with a short position of Brighten Optix. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cathay Financial and Brighten Optix.
Diversification Opportunities for Cathay Financial and Brighten Optix
-0.29 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Cathay and Brighten is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding Cathay Financial Holding and Brighten Optix in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brighten Optix and Cathay Financial 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 Financial Holding are associated (or correlated) with Brighten Optix. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Brighten Optix has no effect on the direction of Cathay Financial i.e., Cathay Financial and Brighten Optix go up and down completely randomly.
Pair Corralation between Cathay Financial and Brighten Optix
Assuming the 90 days trading horizon Cathay Financial Holding is expected to generate 0.2 times more return on investment than Brighten Optix. However, Cathay Financial Holding is 4.92 times less risky than Brighten Optix. It trades about 0.01 of its potential returns per unit of risk. Brighten Optix is currently generating about -0.07 per unit of risk. If you would invest 6,000 in Cathay Financial Holding on November 3, 2024 and sell it today you would earn a total of 20.00 from holding Cathay Financial Holding or generate 0.33% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Cathay Financial Holding vs. Brighten Optix
Performance |
| Timeline |
| Cathay Financial Holding |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Good
| Brighten Optix |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
Cathay Financial and Brighten Optix Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Cathay Financial and Brighten Optix
The main advantage of trading using opposite Cathay Financial and Brighten Optix positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cathay Financial position performs unexpectedly, Brighten Optix 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 Brighten Optix will offset losses from the drop in Brighten Optix's long position.The idea behind Cathay Financial Holding and Brighten Optix 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.
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