Correlation Between Cathay SP and Cathay TIP
Can any of the company-specific risk be diversified away by investing in both Cathay SP 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 SP 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 SP North and Cathay TIP TAIEX, you can compare the effects of market volatilities on Cathay SP 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 SP with a short position of Cathay TIP. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cathay SP and Cathay TIP.
Diversification Opportunities for Cathay SP and Cathay TIP
0.61 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Cathay and Cathay is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Cathay SP North 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 SP 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 SP North 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 SP i.e., Cathay SP and Cathay TIP go up and down completely randomly.
Pair Corralation between Cathay SP and Cathay TIP
Assuming the 90 days trading horizon Cathay SP North is expected to generate 2.04 times more return on investment than Cathay TIP. However, Cathay SP is 2.04 times more volatile than Cathay TIP TAIEX. It trades about 0.22 of its potential returns per unit of risk. Cathay TIP TAIEX is currently generating about 0.13 per unit of risk. If you would invest 4,516 in Cathay SP North on September 12, 2024 and sell it today you would earn a total of 664.00 from holding Cathay SP North or generate 14.7% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Cathay SP North vs. Cathay TIP TAIEX
Performance |
| Timeline |
| Cathay SP North |
| Cathay TIP TAIEX |
Cathay SP and Cathay TIP Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Cathay SP and Cathay TIP
The main advantage of trading using opposite Cathay SP and Cathay TIP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cathay SP 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.| Cathay SP vs. Cathay TIP TAIEX | Cathay SP vs. Cathay Nasdaq AI | Cathay SP vs. Cathay Dow Jones | Cathay SP vs. Cathay Bloomberg Barclays |
| Cathay TIP vs. Cathay Nasdaq AI | Cathay TIP vs. Cathay Dow Jones | Cathay TIP vs. Cathay Bloomberg Barclays | Cathay TIP vs. Cathay TAIEX Daily |
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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.
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