Correlation Between Cathay Financial and GeneFerm Biotechnology

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

Diversification Opportunities for Cathay Financial and GeneFerm Biotechnology

0.71

Correlation Coefficient

Cathay Financial  GeneFerm Biotechnology

Poor diversification

The 3 months correlation between Cathay and GeneFerm is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Cathay Financial Holding and GeneFerm Biotechnology Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GeneFerm Biotechnology 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 GeneFerm Biotechnology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GeneFerm Biotechnology has no effect on the direction of Cathay Financial i.e., Cathay Financial and GeneFerm Biotechnology go up and down completely randomly.

Pair Corralation between Cathay Financial and GeneFerm Biotechnology

Assuming the 90 days trading horizon Cathay Financial Holding is expected to generate 0.15 times more return on investment than GeneFerm Biotechnology. However, Cathay Financial Holding is 6.49 times less risky than GeneFerm Biotechnology. It trades about 0.3 of its potential returns per unit of risk. GeneFerm Biotechnology Co is currently generating about 0.04 per unit of risk. If you would invest  5,690  in Cathay Financial Holding on September 1, 2024 and sell it today you would earn a total of  310.00  from holding Cathay Financial Holding or generate 5.45% return on investment over 90 days.

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

Cathay Financial Holding  vs.  GeneFerm Biotechnology Co

Cathay Financial Holding

Risk-Adjusted Performance

24 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Cathay Financial Holding are ranked lower than 24 (%) 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.

GeneFerm Biotechnology

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in GeneFerm Biotechnology Co are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, GeneFerm Biotechnology is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Cathay Financial and GeneFerm Biotechnology

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

The idea behind Cathay Financial Holding and GeneFerm Biotechnology 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.