Correlation Between Cathay Biotech and DO Home

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

Diversification Opportunities for Cathay Biotech and DO Home

0.74
  Correlation Coefficient

Poor diversification

The 3 months correlation between Cathay and 002798 is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Cathay Biotech and DO Home Collection in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DO Home Collection and Cathay Biotech 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 Biotech are associated (or correlated) with DO Home. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DO Home Collection has no effect on the direction of Cathay Biotech i.e., Cathay Biotech and DO Home go up and down completely randomly.

Pair Corralation between Cathay Biotech and DO Home

Assuming the 90 days trading horizon Cathay Biotech is expected to generate 0.81 times more return on investment than DO Home. However, Cathay Biotech is 1.23 times less risky than DO Home. It trades about -0.02 of its potential returns per unit of risk. DO Home Collection is currently generating about -0.02 per unit of risk. If you would invest  6,189  in Cathay Biotech on September 14, 2024 and sell it today you would lose (1,688) from holding Cathay Biotech or give up 27.27% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Cathay Biotech  vs.  DO Home Collection

 Performance 
       Timeline  
Cathay Biotech 

Risk-Adjusted Performance

11 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Cathay Biotech are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Cathay Biotech sustained solid returns over the last few months and may actually be approaching a breakup point.
DO Home Collection 

Risk-Adjusted Performance

21 of 100

 
Weak
 
Strong
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in DO Home Collection are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, DO Home sustained solid returns over the last few months and may actually be approaching a breakup point.

Cathay Biotech and DO Home Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Cathay Biotech and DO Home

The main advantage of trading using opposite Cathay Biotech and DO Home positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cathay Biotech position performs unexpectedly, DO Home 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 DO Home will offset losses from the drop in DO Home's long position.
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The idea behind Cathay Biotech and DO Home Collection 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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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 Money Managers module to screen money managers from public funds and ETFs managed around the world.

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