Correlation Between Cathay TAIEX and Fubon Hang

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

Diversification Opportunities for Cathay TAIEX and Fubon Hang

-0.55

Correlation Coefficient

Cathay TAIEX  Fubon Hang

Excellent diversification

The 3 months correlation between Cathay and Fubon is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding Cathay TAIEX Daily and Fubon Hang Seng in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fubon Hang Seng 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 Hang. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fubon Hang Seng has no effect on the direction of Cathay TAIEX i.e., Cathay TAIEX and Fubon Hang go up and down completely randomly.

Pair Corralation between Cathay TAIEX and Fubon Hang

Assuming the 90 days trading horizon Cathay TAIEX Daily is expected to under-perform the Fubon Hang. But the etf apears to be less risky and, when comparing its historical volatility, Cathay TAIEX Daily is 4.74 times less risky than Fubon Hang. The etf trades about -0.08 of its potential returns per unit of risk. The Fubon Hang Seng is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  613.00  in Fubon Hang Seng on September 16, 2024 and sell it today you would earn a total of  208.00  from holding Fubon Hang Seng or generate 33.93% return on investment over 90 days.

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

Cathay TAIEX Daily  vs.  Fubon Hang Seng

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 Hang Seng

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Fubon Hang Seng are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat abnormal basic indicators, Fubon Hang sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Cathay TAIEX and Fubon Hang

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

The idea behind Cathay TAIEX Daily and Fubon Hang Seng 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.