Correlation Between Cathay Financial and Microbio

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

Diversification Opportunities for Cathay Financial and Microbio

-0.63

Correlation Coefficient

Cathay Financial  Microbio

Excellent diversification

The 3 months correlation between Cathay and Microbio is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding Cathay Financial Holding and Microbio Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microbio 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 Microbio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Microbio has no effect on the direction of Cathay Financial i.e., Cathay Financial and Microbio go up and down completely randomly.

Pair Corralation between Cathay Financial and Microbio

Assuming the 90 days trading horizon Cathay Financial is expected to generate 61.64 times less return on investment than Microbio. But when comparing it to its historical volatility, Cathay Financial Holding is 45.71 times less risky than Microbio. It trades about 0.02 of its potential returns per unit of risk. Microbio Co is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  5,295  in Microbio Co on September 12, 2024 and sell it today you would lose (1,620) from holding Microbio Co or give up 30.59% of portfolio value over 90 days.

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

Cathay Financial Holding  vs.  Microbio Co

Cathay Financial Holding

Risk-Adjusted Performance

25 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Cathay Financial Holding are ranked lower than 25 (%) 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 newest stock price uproar, may contribute to short-horizon losses for the private investors.

Microbio

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Microbio Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in January 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Pair Trading with Cathay Financial and Microbio

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

The idea behind Cathay Financial Holding and Microbio 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.