Correlation Between Cathay Sustainability and YuantaP Shares
Can any of the company-specific risk be diversified away by investing in both Cathay Sustainability and YuantaP Shares 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 Sustainability and YuantaP Shares into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Cathay Sustainability High and YuantaP shares MSCI Taiwan, you can compare the effects of market volatilities on Cathay Sustainability and YuantaP Shares 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 Sustainability with a short position of YuantaP Shares. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cathay Sustainability and YuantaP Shares.
Diversification Opportunities for Cathay Sustainability and YuantaP Shares
0.77 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Cathay and YuantaP is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Cathay Sustainability High and YuantaP shares MSCI Taiwan in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on YuantaP shares MSCI and Cathay Sustainability 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 Sustainability High are associated (or correlated) with YuantaP Shares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of YuantaP shares MSCI has no effect on the direction of Cathay Sustainability i.e., Cathay Sustainability and YuantaP Shares go up and down completely randomly.
Pair Corralation between Cathay Sustainability and YuantaP Shares
Assuming the 90 days trading horizon Cathay Sustainability is expected to generate 3.2 times less return on investment than YuantaP Shares. But when comparing it to its historical volatility, Cathay Sustainability High is 1.38 times less risky than YuantaP Shares. It trades about 0.04 of its potential returns per unit of risk. YuantaP shares MSCI Taiwan is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest 6,840 in YuantaP shares MSCI Taiwan on November 3, 2024 and sell it today you would earn a total of 2,505 from holding YuantaP shares MSCI Taiwan or generate 36.62% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Cathay Sustainability High vs. YuantaP shares MSCI Taiwan
Performance |
| Timeline |
| Cathay Sustainability |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
| YuantaP shares MSCI |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Insignificant
Cathay Sustainability and YuantaP Shares Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Cathay Sustainability and YuantaP Shares
The main advantage of trading using opposite Cathay Sustainability and YuantaP Shares positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cathay Sustainability position performs unexpectedly, YuantaP Shares 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 YuantaP Shares will offset losses from the drop in YuantaP Shares' long position.The idea behind Cathay Sustainability High and YuantaP shares MSCI Taiwan 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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