Correlation Between Cathay DJIA and Fubon NASDAQ
Can any of the company-specific risk be diversified away by investing in both Cathay DJIA and Fubon NASDAQ 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 DJIA and Fubon NASDAQ into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Cathay DJIA Inv and Fubon NASDAQ 100 1X, you can compare the effects of market volatilities on Cathay DJIA and Fubon NASDAQ 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 DJIA with a short position of Fubon NASDAQ. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cathay DJIA and Fubon NASDAQ.
Diversification Opportunities for Cathay DJIA and Fubon NASDAQ
0.89 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Cathay and Fubon is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Cathay DJIA Inv and Fubon NASDAQ 100 1X in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fubon NASDAQ 100 and Cathay DJIA 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 DJIA Inv are associated (or correlated) with Fubon NASDAQ. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fubon NASDAQ 100 has no effect on the direction of Cathay DJIA i.e., Cathay DJIA and Fubon NASDAQ go up and down completely randomly.
Pair Corralation between Cathay DJIA and Fubon NASDAQ
Assuming the 90 days trading horizon Cathay DJIA Inv is expected to under-perform the Fubon NASDAQ. But the etf apears to be less risky and, when comparing its historical volatility, Cathay DJIA Inv is 1.75 times less risky than Fubon NASDAQ. The etf trades about -0.15 of its potential returns per unit of risk. The Fubon NASDAQ 100 1X is currently generating about -0.07 of returns per unit of risk over similar time horizon. If you would invest 400.00 in Fubon NASDAQ 100 1X on August 28, 2024 and sell it today you would lose (47.00) from holding Fubon NASDAQ 100 1X or give up 11.75% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Cathay DJIA Inv vs. Fubon NASDAQ 100 1X
Performance |
| Timeline |
| Cathay DJIA Inv |
| Fubon NASDAQ 100 |
Cathay DJIA and Fubon NASDAQ Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Cathay DJIA and Fubon NASDAQ
The main advantage of trading using opposite Cathay DJIA and Fubon NASDAQ positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cathay DJIA position performs unexpectedly, Fubon NASDAQ 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 Fubon NASDAQ will offset losses from the drop in Fubon NASDAQ's long position.The idea behind Cathay DJIA Inv and Fubon NASDAQ 100 1X 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.
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