Correlation Between Cathay Nikkei and Yuanta Daily

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

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

Diversification Opportunities for Cathay Nikkei and Yuanta Daily

-0.78

Correlation Coefficient

Cathay Nikkei  Yuanta Daily

Pay attention - limited upside

The 3 months correlation between Cathay and Yuanta is -0.78. Overlapping area represents the amount of risk that can be diversified away by holding Cathay Nikkei 225 and Yuanta Daily Taiwan in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Yuanta Daily Taiwan and Cathay Nikkei 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 Nikkei 225 are associated (or correlated) with Yuanta Daily. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Yuanta Daily Taiwan has no effect on the direction of Cathay Nikkei i.e., Cathay Nikkei and Yuanta Daily go up and down completely randomly.

Pair Corralation between Cathay Nikkei and Yuanta Daily

Assuming the 90 days trading horizon Cathay Nikkei 225 is expected to under-perform the Yuanta Daily. In addition to that, Cathay Nikkei is 1.01 times more volatile than Yuanta Daily Taiwan. It trades about -0.04 of its total potential returns per unit of risk. Yuanta Daily Taiwan is currently generating about 0.07 per unit of volatility. If you would invest  2,281  in Yuanta Daily Taiwan on December 23, 2024 and sell it today you would earn a total of  94.00  from holding Yuanta Daily Taiwan or generate 4.12% return on investment over 90 days.

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

Cathay Nikkei 225  vs.  Yuanta Daily Taiwan

Cathay Nikkei 225

Risk-Adjusted Performance

Very Weak

Over the last 90 days Cathay Nikkei 225 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Cathay Nikkei is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Yuanta Daily Taiwan

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Yuanta Daily Taiwan are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Yuanta Daily is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Cathay Nikkei and Yuanta Daily

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

The idea behind Cathay Nikkei 225 and Yuanta Daily Taiwan 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.