Correlation Between Cathay Financial and Radiant Innovation

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

Diversification Opportunities for Cathay Financial and Radiant Innovation

-0.84

Correlation Coefficient

Cathay Financial  Radiant Innovation

Pay attention - limited upside

The 3 months correlation between Cathay and Radiant is -0.84. Overlapping area represents the amount of risk that can be diversified away by holding Cathay Financial Holding and Radiant Innovation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Radiant Innovation 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 Radiant Innovation. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Radiant Innovation has no effect on the direction of Cathay Financial i.e., Cathay Financial and Radiant Innovation go up and down completely randomly.

Pair Corralation between Cathay Financial and Radiant Innovation

Assuming the 90 days trading horizon Cathay Financial is expected to generate 1.87 times less return on investment than Radiant Innovation. But when comparing it to its historical volatility, Cathay Financial Holding is 3.64 times less risky than Radiant Innovation. It trades about 0.09 of its potential returns per unit of risk. Radiant Innovation is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  2,040  in Radiant Innovation on January 30, 2024 and sell it today you would earn a total of  275.00  from holding Radiant Innovation or generate 13.48% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	99.16%
Values	Daily Returns

Cathay Financial Holding  vs.  Radiant Innovation

Cathay Financial Holding

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Cathay Financial Holding are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Cathay Financial showed solid returns over the last few months and may actually be approaching a breakup point.

Radiant Innovation

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Radiant Innovation 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 May 2024. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Pair Trading with Cathay Financial and Radiant Innovation

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

The idea behind Cathay Financial Holding and Radiant Innovation 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.