Correlation Between Cathay Financial and Sesoda Corp

Can any of the company-specific risk be diversified away by investing in both Cathay Financial and Sesoda Corp 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 Sesoda Corp 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 Sesoda Corp, you can compare the effects of market volatilities on Cathay Financial and Sesoda Corp 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 Sesoda Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cathay Financial and Sesoda Corp.

Diversification Opportunities for Cathay Financial and Sesoda Corp

0.14

Correlation Coefficient

Cathay Financial  Sesoda Corp

Average diversification

The 3 months correlation between Cathay and Sesoda is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding Cathay Financial Holding and Sesoda Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sesoda Corp 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 Sesoda Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sesoda Corp has no effect on the direction of Cathay Financial i.e., Cathay Financial and Sesoda Corp go up and down completely randomly.

Pair Corralation between Cathay Financial and Sesoda Corp

Assuming the 90 days trading horizon Cathay Financial is expected to generate 1.92 times less return on investment than Sesoda Corp. But when comparing it to its historical volatility, Cathay Financial Holding is 1.51 times less risky than Sesoda Corp. It trades about 0.05 of its potential returns per unit of risk. Sesoda Corp is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  3,945  in Sesoda Corp on September 3, 2024 and sell it today you would earn a total of  235.00  from holding Sesoda Corp or generate 5.96% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Cathay Financial Holding  vs.  Sesoda Corp

Cathay Financial Holding

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Cathay Financial Holding are ranked lower than 3 (%) 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.

Sesoda Corp

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Sesoda Corp are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Sesoda Corp may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Cathay Financial and Sesoda Corp

The main advantage of trading using opposite Cathay Financial and Sesoda Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cathay Financial position performs unexpectedly, Sesoda Corp 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 Sesoda Corp will offset losses from the drop in Sesoda Corp's long position.

The idea behind Cathay Financial Holding and Sesoda Corp 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.