Correlation Between Fuh Hwa and Cathay Dow
Can any of the company-specific risk be diversified away by investing in both Fuh Hwa and Cathay Dow 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 Fuh Hwa and Cathay Dow into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Fuh Hwa Emerging and Cathay Dow Jones, you can compare the effects of market volatilities on Fuh Hwa and Cathay Dow 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 Fuh Hwa with a short position of Cathay Dow. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fuh Hwa and Cathay Dow.
Diversification Opportunities for Fuh Hwa and Cathay Dow
-0.68 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Fuh and Cathay is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding Fuh Hwa Emerging and Cathay Dow Jones in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cathay Dow Jones and Fuh Hwa 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 Fuh Hwa Emerging are associated (or correlated) with Cathay Dow. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cathay Dow Jones has no effect on the direction of Fuh Hwa i.e., Fuh Hwa and Cathay Dow go up and down completely randomly.
Pair Corralation between Fuh Hwa and Cathay Dow
Assuming the 90 days trading horizon Fuh Hwa is expected to generate 4.79 times less return on investment than Cathay Dow. But when comparing it to its historical volatility, Fuh Hwa Emerging is 1.97 times less risky than Cathay Dow. It trades about 0.08 of its potential returns per unit of risk. Cathay Dow Jones is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest 1,530 in Cathay Dow Jones on August 27, 2024 and sell it today you would earn a total of 64.00 from holding Cathay Dow Jones or generate 4.18% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Fuh Hwa Emerging vs. Cathay Dow Jones
Performance |
| Timeline |
| Fuh Hwa Emerging |
| Cathay Dow Jones |
Fuh Hwa and Cathay Dow Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Fuh Hwa and Cathay Dow
The main advantage of trading using opposite Fuh Hwa and Cathay Dow positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fuh Hwa position performs unexpectedly, Cathay Dow 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 Dow will offset losses from the drop in Cathay Dow's long position.The idea behind Fuh Hwa Emerging and Cathay Dow Jones 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .
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