Correlation Between Cathay TAIEX and Fuh Hwa

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

Diversification Opportunities for Cathay TAIEX and Fuh Hwa

0.69

Correlation Coefficient

Cathay TAIEX  Fuh Hwa

Poor diversification

The 3 months correlation between Cathay and Fuh is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Cathay TAIEX Daily and Fuh Hwa Emerging in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fuh Hwa Emerging 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 Fuh Hwa. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fuh Hwa Emerging has no effect on the direction of Cathay TAIEX i.e., Cathay TAIEX and Fuh Hwa go up and down completely randomly.

Pair Corralation between Cathay TAIEX and Fuh Hwa

Assuming the 90 days trading horizon Cathay TAIEX Daily is expected to under-perform the Fuh Hwa. In addition to that, Cathay TAIEX is 2.06 times more volatile than Fuh Hwa Emerging. It trades about -0.09 of its total potential returns per unit of risk. Fuh Hwa Emerging is currently generating about -0.09 per unit of volatility. If you would invest  1,731  in Fuh Hwa Emerging on September 12, 2024 and sell it today you would lose (47.00) from holding Fuh Hwa Emerging or give up 2.72% of portfolio value over 90 days.

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

Cathay TAIEX Daily  vs.  Fuh Hwa Emerging

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.

Fuh Hwa Emerging

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Fuh Hwa Emerging has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Fuh Hwa 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 Fuh Hwa

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

The idea behind Cathay TAIEX Daily and Fuh Hwa Emerging 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.