Correlation Between Cathay TAIEX and Fubon SSE180

Can any of the company-specific risk be diversified away by investing in both Cathay TAIEX and Fubon SSE180 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 TAIEX and Fubon SSE180 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Cathay TAIEX Daily and Fubon SSE180 Exchange, you can compare the effects of market volatilities on Cathay TAIEX and Fubon SSE180 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 TAIEX with a short position of Fubon SSE180. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cathay TAIEX and Fubon SSE180.

Diversification Opportunities for Cathay TAIEX and Fubon SSE180

0.01

Correlation Coefficient

Cathay TAIEX  Fubon SSE180

Significant diversification

The 3 months correlation between Cathay and Fubon is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding Cathay TAIEX Daily and Fubon SSE180 Exchange in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fubon SSE180 Exchange and Cathay TAIEX 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 TAIEX Daily are associated (or correlated) with Fubon SSE180. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fubon SSE180 Exchange has no effect on the direction of Cathay TAIEX i.e., Cathay TAIEX and Fubon SSE180 go up and down completely randomly.

Pair Corralation between Cathay TAIEX and Fubon SSE180

Assuming the 90 days trading horizon Cathay TAIEX Daily is expected to under-perform the Fubon SSE180. In addition to that, Cathay TAIEX is 1.1 times more volatile than Fubon SSE180 Exchange. It trades about -0.09 of its total potential returns per unit of risk. Fubon SSE180 Exchange is currently generating about 0.01 per unit of volatility. If you would invest  723.00  in Fubon SSE180 Exchange on October 7, 2024 and sell it today you would earn a total of  18.00  from holding Fubon SSE180 Exchange or generate 2.49% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	99.79%
Values	Daily Returns

Cathay TAIEX Daily  vs.  Fubon SSE180 Exchange

Cathay TAIEX Daily

Risk-Adjusted Performance

0 of 100

Very Weak

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

Fubon SSE180 Exchange

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Fubon SSE180 Exchange has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Fubon SSE180 is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Cathay TAIEX and Fubon SSE180

The main advantage of trading using opposite Cathay TAIEX and Fubon SSE180 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cathay TAIEX position performs unexpectedly, Fubon SSE180 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 SSE180 will offset losses from the drop in Fubon SSE180's long position.

The idea behind Cathay TAIEX Daily and Fubon SSE180 Exchange 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.