Correlation Between Cathay Dow and Cathay TIP
Can any of the company-specific risk be diversified away by investing in both Cathay Dow and Cathay TIP 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 Dow and Cathay TIP into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Cathay Dow Jones and Cathay TIP TAIEX, you can compare the effects of market volatilities on Cathay Dow and Cathay TIP 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 Dow with a short position of Cathay TIP. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cathay Dow and Cathay TIP.
Diversification Opportunities for Cathay Dow and Cathay TIP
0.36 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Cathay and Cathay is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Cathay Dow Jones and Cathay TIP TAIEX in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cathay TIP TAIEX and Cathay Dow 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 Dow Jones are associated (or correlated) with Cathay TIP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cathay TIP TAIEX has no effect on the direction of Cathay Dow i.e., Cathay Dow and Cathay TIP go up and down completely randomly.
Pair Corralation between Cathay Dow and Cathay TIP
Assuming the 90 days trading horizon Cathay Dow Jones is expected to generate 0.79 times more return on investment than Cathay TIP. However, Cathay Dow Jones is 1.26 times less risky than Cathay TIP. It trades about 0.08 of its potential returns per unit of risk. Cathay TIP TAIEX is currently generating about 0.04 per unit of risk. If you would invest 1,391 in Cathay Dow Jones on November 3, 2024 and sell it today you would earn a total of 208.00 from holding Cathay Dow Jones or generate 14.95% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Cathay Dow Jones vs. Cathay TIP TAIEX
Performance |
| Timeline |
| Cathay Dow Jones |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
OK
| Cathay TIP TAIEX |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
Cathay Dow and Cathay TIP Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Cathay Dow and Cathay TIP
The main advantage of trading using opposite Cathay Dow and Cathay TIP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cathay Dow position performs unexpectedly, Cathay TIP 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 Cathay TIP will offset losses from the drop in Cathay TIP's long position.The idea behind Cathay Dow Jones and Cathay TIP TAIEX 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..
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