Correlation Between Newretail and Cathay Financial

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

Diversification Opportunities for Newretail and Cathay Financial

-0.48
  Correlation Coefficient

Very good diversification

The 3 months correlation between Newretail and Cathay is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding Newretail 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 Newretail 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 Newretail 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 Newretail i.e., Newretail and Cathay Financial go up and down completely randomly.

Pair Corralation between Newretail and Cathay Financial

Assuming the 90 days trading horizon Newretail Co is expected to generate 16.5 times more return on investment than Cathay Financial. However, Newretail is 16.5 times more volatile than Cathay Financial Holding. It trades about 0.02 of its potential returns per unit of risk. Cathay Financial Holding is currently generating about 0.01 per unit of risk. If you would invest  2,140  in Newretail Co on November 28, 2024 and sell it today you would earn a total of  75.00  from holding Newretail Co or generate 3.5% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Newretail Co  vs.  Cathay Financial Holding

 Performance 
       Timeline  
Newretail 

Risk-Adjusted Performance

Very Weak

 
Weak
 
Strong
Over the last 90 days Newretail Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.
Cathay Financial Holding 

Risk-Adjusted Performance

Good

 
Weak
 
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in Cathay Financial Holding are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Cathay Financial is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Newretail and Cathay Financial Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Newretail and Cathay Financial

The main advantage of trading using opposite Newretail and Cathay Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Newretail 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 Newretail 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.

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