Correlation Between Information Technology and Cathay DJIA
Can any of the company-specific risk be diversified away by investing in both Information Technology and Cathay DJIA 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 Information Technology and Cathay DJIA into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Information Technology Total and Cathay DJIA Inv, you can compare the effects of market volatilities on Information Technology and Cathay DJIA 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 Information Technology with a short position of Cathay DJIA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Information Technology and Cathay DJIA.
Diversification Opportunities for Information Technology and Cathay DJIA
-0.32 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Information and Cathay is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding Information Technology Total and Cathay DJIA Inv in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cathay DJIA Inv and Information Technology 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 Information Technology Total are associated (or correlated) with Cathay DJIA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cathay DJIA Inv has no effect on the direction of Information Technology i.e., Information Technology and Cathay DJIA go up and down completely randomly.
Pair Corralation between Information Technology and Cathay DJIA
Assuming the 90 days trading horizon Information Technology Total is expected to generate 1.96 times more return on investment than Cathay DJIA. However, Information Technology is 1.96 times more volatile than Cathay DJIA Inv. It trades about -0.11 of its potential returns per unit of risk. Cathay DJIA Inv is currently generating about -0.31 per unit of risk. If you would invest 4,715 in Information Technology Total on September 5, 2024 and sell it today you would lose (200.00) from holding Information Technology Total or give up 4.24% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Information Technology Total vs. Cathay DJIA Inv
Performance |
| Timeline |
| Information Technology |
| Cathay DJIA Inv |
Information Technology and Cathay DJIA Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Information Technology and Cathay DJIA
The main advantage of trading using opposite Information Technology and Cathay DJIA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Information Technology position performs unexpectedly, Cathay DJIA 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 DJIA will offset losses from the drop in Cathay DJIA's long position.| Information Technology vs. ESUN Financial Holding | Information Technology vs. Lelon Electronics Corp | Information Technology vs. Newretail Co | Information Technology vs. Elan Microelectronics Corp |
| Cathay DJIA vs. Ruentex Development Co | Cathay DJIA vs. Symtek Automation Asia | Cathay DJIA vs. CTCI Corp | Cathay DJIA vs. Information Technology Total |
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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.
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