Correlation Between Cathay Taiwan and Cathay TAIEX
Can any of the company-specific risk be diversified away by investing in both Cathay Taiwan and Cathay TAIEX 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 Taiwan and Cathay TAIEX into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Cathay Taiwan 5G and Cathay TAIEX Daily, you can compare the effects of market volatilities on Cathay Taiwan and Cathay TAIEX 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 Taiwan with a short position of Cathay TAIEX. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cathay Taiwan and Cathay TAIEX.
Diversification Opportunities for Cathay Taiwan and Cathay TAIEX
-0.66 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Cathay and Cathay is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding Cathay Taiwan 5G and Cathay TAIEX Daily in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cathay TAIEX Daily and Cathay Taiwan 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 Taiwan 5G are associated (or correlated) with Cathay TAIEX. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cathay TAIEX Daily has no effect on the direction of Cathay Taiwan i.e., Cathay Taiwan and Cathay TAIEX go up and down completely randomly.
Pair Corralation between Cathay Taiwan and Cathay TAIEX
Assuming the 90 days trading horizon Cathay Taiwan 5G is expected to under-perform the Cathay TAIEX. In addition to that, Cathay Taiwan is 1.12 times more volatile than Cathay TAIEX Daily. It trades about -0.13 of its total potential returns per unit of risk. Cathay TAIEX Daily is currently generating about 0.11 per unit of volatility. If you would invest 368.00 in Cathay TAIEX Daily on August 29, 2024 and sell it today you would earn a total of 9.00 from holding Cathay TAIEX Daily or generate 2.45% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 95.45% |
| Values | Daily Returns |
Cathay Taiwan 5G vs. Cathay TAIEX Daily
Performance |
| Timeline |
| Cathay Taiwan 5G |
| Cathay TAIEX Daily |
Cathay Taiwan and Cathay TAIEX Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Cathay Taiwan and Cathay TAIEX
The main advantage of trading using opposite Cathay Taiwan and Cathay TAIEX positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cathay Taiwan position performs unexpectedly, Cathay TAIEX 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 TAIEX will offset losses from the drop in Cathay TAIEX's long position.| 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .
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