Correlation Between Cathay Financial and Asia Optical

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

Diversification Opportunities for Cathay Financial and Asia Optical

-0.66

Correlation Coefficient

Cathay Financial  Asia Optical

Excellent diversification

The 3 months correlation between Cathay and Asia is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding Cathay Financial Holding and Asia Optical Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Asia Optical 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 Asia Optical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Asia Optical has no effect on the direction of Cathay Financial i.e., Cathay Financial and Asia Optical go up and down completely randomly.

Pair Corralation between Cathay Financial and Asia Optical

Assuming the 90 days trading horizon Cathay Financial is expected to generate 1.25 times less return on investment than Asia Optical. But when comparing it to its historical volatility, Cathay Financial Holding is 1.62 times less risky than Asia Optical. It trades about 0.08 of its potential returns per unit of risk. Asia Optical Co is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  6,300  in Asia Optical Co on September 3, 2024 and sell it today you would earn a total of  4,450  from holding Asia Optical Co or generate 70.63% return on investment over 90 days.

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

Cathay Financial Holding  vs.  Asia Optical Co

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.

Asia Optical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Asia Optical 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.

Pair Trading with Cathay Financial and Asia Optical

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

The idea behind Cathay Financial Holding and Asia Optical Co 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.