Correlation Between Cathay TAIEX and Fubon NASDAQ

Can any of the company-specific risk be diversified away by investing in both Cathay TAIEX and Fubon NASDAQ 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 NASDAQ 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 NASDAQ 100 Index, you can compare the effects of market volatilities on Cathay TAIEX and Fubon NASDAQ 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 NASDAQ. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cathay TAIEX and Fubon NASDAQ.

Diversification Opportunities for Cathay TAIEX and Fubon NASDAQ

-0.66

Correlation Coefficient

Cathay TAIEX  Fubon NASDAQ

Excellent diversification

The 3 months correlation between Cathay and Fubon is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding Cathay TAIEX Daily and Fubon NASDAQ 100 Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fubon NASDAQ 100 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 NASDAQ. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fubon NASDAQ 100 has no effect on the direction of Cathay TAIEX i.e., Cathay TAIEX and Fubon NASDAQ go up and down completely randomly.

Pair Corralation between Cathay TAIEX and Fubon NASDAQ

Assuming the 90 days trading horizon Cathay TAIEX Daily is expected to generate 0.99 times more return on investment than Fubon NASDAQ. However, Cathay TAIEX Daily is 1.01 times less risky than Fubon NASDAQ. It trades about 0.05 of its potential returns per unit of risk. Fubon NASDAQ 100 Index is currently generating about -0.05 per unit of risk. If you would invest  367.00  in Cathay TAIEX Daily on December 5, 2024 and sell it today you would earn a total of  9.00  from holding Cathay TAIEX Daily or generate 2.45% return on investment over 90 days.

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

Cathay TAIEX Daily  vs.  Fubon NASDAQ 100 Index

Cathay TAIEX Daily

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Cathay TAIEX Daily are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Cathay TAIEX is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Fubon NASDAQ 100

Risk-Adjusted Performance

Very Weak

Over the last 90 days Fubon NASDAQ 100 Index has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Fubon NASDAQ is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Cathay TAIEX and Fubon NASDAQ

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

The idea behind Cathay TAIEX Daily and Fubon NASDAQ 100 Index 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.