Correlation Between Cathay TAIEX and YuantaP Shares
Can any of the company-specific risk be diversified away by investing in both Cathay TAIEX and YuantaP Shares 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 TAIEX and YuantaP Shares into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Cathay TAIEX Daily and YuantaP shares Taiwan Mid Cap, you can compare the effects of market volatilities on Cathay TAIEX and YuantaP Shares 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 TAIEX with a short position of YuantaP Shares. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cathay TAIEX and YuantaP Shares.
Diversification Opportunities for Cathay TAIEX and YuantaP Shares
-0.46 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Cathay and YuantaP is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding Cathay TAIEX Daily and YuantaP shares Taiwan Mid Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on YuantaP shares Taiwan and Cathay TAIEX 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 TAIEX Daily are associated (or correlated) with YuantaP Shares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of YuantaP shares Taiwan has no effect on the direction of Cathay TAIEX i.e., Cathay TAIEX and YuantaP Shares go up and down completely randomly.
Pair Corralation between Cathay TAIEX and YuantaP Shares
Assuming the 90 days trading horizon Cathay TAIEX Daily is expected to generate 1.04 times more return on investment than YuantaP Shares. However, Cathay TAIEX is 1.04 times more volatile than YuantaP shares Taiwan Mid Cap. It trades about -0.01 of its potential returns per unit of risk. YuantaP shares Taiwan Mid Cap is currently generating about -0.13 per unit of risk. If you would invest 374.00 in Cathay TAIEX Daily on August 28, 2024 and sell it today you would lose (3.00) from holding Cathay TAIEX Daily or give up 0.8% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Cathay TAIEX Daily vs. YuantaP shares Taiwan Mid Cap
Performance |
| Timeline |
| Cathay TAIEX Daily |
| YuantaP shares Taiwan |
Cathay TAIEX and YuantaP Shares Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Cathay TAIEX and YuantaP Shares
The main advantage of trading using opposite Cathay TAIEX and YuantaP Shares positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cathay TAIEX position performs unexpectedly, YuantaP Shares 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 YuantaP Shares will offset losses from the drop in YuantaP Shares' long position.The idea behind Cathay TAIEX Daily and YuantaP shares Taiwan Mid Cap 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.
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