Correlation Between Cathay TAIEX and Capital Taiex

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

Diversification Opportunities for Cathay TAIEX and Capital Taiex

0.97

Correlation Coefficient

Cathay TAIEX  Capital Taiex

Almost no diversification

The 3 months correlation between Cathay and Capital is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Cathay TAIEX Daily and Capital Taiex Daily in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capital Taiex Daily 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 Capital Taiex. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Capital Taiex Daily has no effect on the direction of Cathay TAIEX i.e., Cathay TAIEX and Capital Taiex go up and down completely randomly.

Pair Corralation between Cathay TAIEX and Capital Taiex

Assuming the 90 days trading horizon Cathay TAIEX Daily is expected to under-perform the Capital Taiex. In addition to that, Cathay TAIEX is 1.03 times more volatile than Capital Taiex Daily. It trades about -0.08 of its total potential returns per unit of risk. Capital Taiex Daily is currently generating about -0.08 per unit of volatility. If you would invest  329.00  in Capital Taiex Daily on December 2, 2024 and sell it today you would lose (106.00) from holding Capital Taiex Daily or give up 32.22% of portfolio value over 90 days.

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

Cathay TAIEX Daily  vs.  Capital Taiex Daily

Cathay TAIEX Daily

Risk-Adjusted Performance

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 newest stock price disturbance, may contribute to short-term losses for the investors.

Capital Taiex Daily

Risk-Adjusted Performance

Very Weak

Over the last 90 days Capital Taiex Daily has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Capital Taiex 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 TAIEX and Capital Taiex

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

The idea behind Cathay TAIEX Daily and Capital Taiex Daily 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.