Correlation Between Cathay Nasdaq and Cathay Taiwan
Can any of the company-specific risk be diversified away by investing in both Cathay Nasdaq and Cathay Taiwan 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 Nasdaq and Cathay Taiwan into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Cathay Nasdaq AI and Cathay Taiwan 5G, you can compare the effects of market volatilities on Cathay Nasdaq and Cathay Taiwan 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 Nasdaq with a short position of Cathay Taiwan. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cathay Nasdaq and Cathay Taiwan.
Diversification Opportunities for Cathay Nasdaq and Cathay Taiwan
0.57 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Cathay and Cathay is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Cathay Nasdaq AI and Cathay Taiwan 5G in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cathay Taiwan 5G and Cathay Nasdaq 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 Nasdaq AI are associated (or correlated) with Cathay Taiwan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cathay Taiwan 5G has no effect on the direction of Cathay Nasdaq i.e., Cathay Nasdaq and Cathay Taiwan go up and down completely randomly.
Pair Corralation between Cathay Nasdaq and Cathay Taiwan
Assuming the 90 days trading horizon Cathay Nasdaq AI is expected to generate 1.37 times more return on investment than Cathay Taiwan. However, Cathay Nasdaq is 1.37 times more volatile than Cathay Taiwan 5G. It trades about 0.29 of its potential returns per unit of risk. Cathay Taiwan 5G is currently generating about -0.16 per unit of risk. If you would invest 3,096 in Cathay Nasdaq AI on August 28, 2024 and sell it today you would earn a total of 283.00 from holding Cathay Nasdaq AI or generate 9.14% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 86.36% |
| Values | Daily Returns |
Cathay Nasdaq AI vs. Cathay Taiwan 5G
Performance |
| Timeline |
| Cathay Nasdaq AI |
| Cathay Taiwan 5G |
Cathay Nasdaq and Cathay Taiwan Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Cathay Nasdaq and Cathay Taiwan
The main advantage of trading using opposite Cathay Nasdaq and Cathay Taiwan positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cathay Nasdaq position performs unexpectedly, Cathay Taiwan 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 Taiwan will offset losses from the drop in Cathay Taiwan's long position.| Cathay Nasdaq vs. Cathay TIP TAIEX | Cathay Nasdaq vs. Cathay Dow Jones | Cathay Nasdaq vs. Cathay Bloomberg Barclays | Cathay Nasdaq vs. Cathay TAIEX Daily |
| Cathay Taiwan vs. Cathay TIP TAIEX | Cathay Taiwan vs. Cathay Nasdaq AI | Cathay Taiwan vs. Cathay Dow Jones | Cathay Taiwan 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.
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