Correlation Between Yuanta Daily and Cathay Nikkei

Can any of the company-specific risk be diversified away by investing in both Yuanta Daily and Cathay Nikkei 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 Yuanta Daily and Cathay Nikkei into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Yuanta Daily Taiwan and Cathay Nikkei 225, you can compare the effects of market volatilities on Yuanta Daily and Cathay Nikkei 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 Yuanta Daily with a short position of Cathay Nikkei. Check out your portfolio center. Please also check ongoing floating volatility patterns of Yuanta Daily and Cathay Nikkei.

Diversification Opportunities for Yuanta Daily and Cathay Nikkei

0.71

Correlation Coefficient

Yuanta Daily  Cathay Nikkei

Poor diversification

The 3 months correlation between Yuanta and Cathay is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Yuanta Daily Taiwan and Cathay Nikkei 225 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cathay Nikkei 225 and Yuanta Daily 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 Yuanta Daily Taiwan are associated (or correlated) with Cathay Nikkei. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cathay Nikkei 225 has no effect on the direction of Yuanta Daily i.e., Yuanta Daily and Cathay Nikkei go up and down completely randomly.

Pair Corralation between Yuanta Daily and Cathay Nikkei

Assuming the 90 days trading horizon Yuanta Daily is expected to generate 1.38 times less return on investment than Cathay Nikkei. In addition to that, Yuanta Daily is 1.85 times more volatile than Cathay Nikkei 225. It trades about 0.03 of its total potential returns per unit of risk. Cathay Nikkei 225 is currently generating about 0.08 per unit of volatility. If you would invest  1,401  in Cathay Nikkei 225 on September 16, 2024 and sell it today you would earn a total of  25.00  from holding Cathay Nikkei 225 or generate 1.78% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Yuanta Daily Taiwan  vs.  Cathay Nikkei 225

Yuanta Daily Taiwan

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Yuanta Daily Taiwan are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat abnormal basic indicators, Yuanta Daily may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Cathay Nikkei 225

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Cathay Nikkei 225 are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Cathay Nikkei is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Yuanta Daily and Cathay Nikkei

The main advantage of trading using opposite Yuanta Daily and Cathay Nikkei positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Yuanta Daily position performs unexpectedly, Cathay Nikkei 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 Nikkei will offset losses from the drop in Cathay Nikkei's long position.

The idea behind Yuanta Daily Taiwan and Cathay Nikkei 225 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.

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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 Commodity Directory module to find actively traded commodities issued by global exchanges.