Correlation Between Fuh Hwa and Cathay Koreataiwan
Can any of the company-specific risk be diversified away by investing in both Fuh Hwa and Cathay Koreataiwan 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 Koreataiwan into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Fuh Hwa FTSE and Cathay Koreataiwan IT, you can compare the effects of market volatilities on Fuh Hwa and Cathay Koreataiwan 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 Koreataiwan. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fuh Hwa and Cathay Koreataiwan.
Diversification Opportunities for Fuh Hwa and Cathay Koreataiwan
0.69 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Fuh and Cathay is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Fuh Hwa FTSE and Cathay Koreataiwan IT in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cathay Koreataiwan 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 FTSE are associated (or correlated) with Cathay Koreataiwan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cathay Koreataiwan has no effect on the direction of Fuh Hwa i.e., Fuh Hwa and Cathay Koreataiwan go up and down completely randomly.
Pair Corralation between Fuh Hwa and Cathay Koreataiwan
Assuming the 90 days trading horizon Fuh Hwa is expected to generate 1.1 times less return on investment than Cathay Koreataiwan. But when comparing it to its historical volatility, Fuh Hwa FTSE is 1.46 times less risky than Cathay Koreataiwan. It trades about 0.06 of its potential returns per unit of risk. Cathay Koreataiwan IT is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest 2,536 in Cathay Koreataiwan IT on September 3, 2024 and sell it today you would earn a total of 684.00 from holding Cathay Koreataiwan IT or generate 26.97% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 99.78% |
| Values | Daily Returns |
Fuh Hwa FTSE vs. Cathay Koreataiwan IT
Performance |
| Timeline |
| Fuh Hwa FTSE |
| Cathay Koreataiwan |
Fuh Hwa and Cathay Koreataiwan Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Fuh Hwa and Cathay Koreataiwan
The main advantage of trading using opposite Fuh Hwa and Cathay Koreataiwan positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fuh Hwa position performs unexpectedly, Cathay Koreataiwan 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 Koreataiwan will offset losses from the drop in Cathay Koreataiwan's long position.The idea behind Fuh Hwa FTSE and Cathay Koreataiwan IT 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.| Cathay Koreataiwan vs. Cathay TIP TAIEX | Cathay Koreataiwan vs. Cathay Nasdaq AI | Cathay Koreataiwan vs. Cathay Dow Jones | Cathay Koreataiwan vs. Cathay Bloomberg Barclays |
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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.
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