Correlation Between Cathay Taiwan and Fubon FTSE
Can any of the company-specific risk be diversified away by investing in both Cathay Taiwan and Fubon FTSE 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 FTSE 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 FTSE Vietnam, you can compare the effects of market volatilities on Cathay Taiwan and Fubon FTSE 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 FTSE. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cathay Taiwan and Fubon FTSE.
Diversification Opportunities for Cathay Taiwan and Fubon FTSE
-0.53 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Cathay and Fubon is -0.53. Overlapping area represents the amount of risk that can be diversified away by holding Cathay Taiwan 5G and Fubon FTSE Vietnam in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fubon FTSE Vietnam 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 FTSE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fubon FTSE Vietnam has no effect on the direction of Cathay Taiwan i.e., Cathay Taiwan and Fubon FTSE go up and down completely randomly.
Pair Corralation between Cathay Taiwan and Fubon FTSE
Assuming the 90 days trading horizon Cathay Taiwan 5G is expected to generate 1.23 times more return on investment than Fubon FTSE. However, Cathay Taiwan is 1.23 times more volatile than Fubon FTSE Vietnam. It trades about 0.11 of its potential returns per unit of risk. Fubon FTSE Vietnam is currently generating about 0.0 per unit of risk. If you would invest 1,243 in Cathay Taiwan 5G on August 28, 2024 and sell it today you would earn a total of 1,170 from holding Cathay Taiwan 5G or generate 94.13% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 98.54% |
| Values | Daily Returns |
Cathay Taiwan 5G vs. Fubon FTSE Vietnam
Performance |
| Timeline |
| Cathay Taiwan 5G |
| Fubon FTSE Vietnam |
Cathay Taiwan and Fubon FTSE Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Cathay Taiwan and Fubon FTSE
The main advantage of trading using opposite Cathay Taiwan and Fubon FTSE positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cathay Taiwan position performs unexpectedly, Fubon FTSE 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 FTSE will offset losses from the drop in Fubon FTSE's long position.The idea behind Cathay Taiwan 5G and Fubon FTSE Vietnam 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.
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