Correlation Between Cathay Taiwan and Fubon TWSE
Can any of the company-specific risk be diversified away by investing in both Cathay Taiwan and Fubon TWSE 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 Fubon TWSE 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 Fubon TWSE Corporate, you can compare the effects of market volatilities on Cathay Taiwan and Fubon TWSE 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 Fubon TWSE. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cathay Taiwan and Fubon TWSE.
Diversification Opportunities for Cathay Taiwan and Fubon TWSE
0.78 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Cathay and Fubon is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Cathay Taiwan 5G and Fubon TWSE Corporate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fubon TWSE Corporate 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 Fubon TWSE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fubon TWSE Corporate has no effect on the direction of Cathay Taiwan i.e., Cathay Taiwan and Fubon TWSE go up and down completely randomly.
Pair Corralation between Cathay Taiwan and Fubon TWSE
Assuming the 90 days trading horizon Cathay Taiwan 5G is expected to under-perform the Fubon TWSE. But the etf apears to be less risky and, when comparing its historical volatility, Cathay Taiwan 5G is 1.06 times less risky than Fubon TWSE. The etf trades about -0.13 of its potential returns per unit of risk. The Fubon TWSE Corporate is currently generating about -0.09 of returns per unit of risk over similar time horizon. If you would invest 4,517 in Fubon TWSE Corporate on September 4, 2024 and sell it today you would lose (107.00) from holding Fubon TWSE Corporate or give up 2.37% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.45% |
| Values | Daily Returns |
Cathay Taiwan 5G vs. Fubon TWSE Corporate
Performance |
| Timeline |
| Cathay Taiwan 5G |
| Fubon TWSE Corporate |
Cathay Taiwan and Fubon TWSE Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Cathay Taiwan and Fubon TWSE
The main advantage of trading using opposite Cathay Taiwan and Fubon TWSE positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cathay Taiwan position performs unexpectedly, Fubon TWSE 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 Fubon TWSE will offset losses from the drop in Fubon TWSE's long position.| Cathay Taiwan vs. Ruentex Development Co | Cathay Taiwan vs. Symtek Automation Asia | Cathay Taiwan vs. CTCI Corp | Cathay Taiwan vs. Information Technology Total |
| Fubon TWSE vs. Cathay Taiwan 5G | Fubon TWSE vs. Ruentex Development Co | Fubon TWSE vs. Symtek Automation Asia | Fubon TWSE vs. CTCI Corp |
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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.
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