Correlation Between Cathay Dow and Cathay Taiwan

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

By analyzing existing cross correlation between Cathay Dow Jones and Cathay Taiwan 5G, you can compare the effects of market volatilities on Cathay Dow and Cathay Taiwan 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 Dow with a short position of Cathay Taiwan. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cathay Dow and Cathay Taiwan.

Diversification Opportunities for Cathay Dow and Cathay Taiwan

-0.13

Correlation Coefficient

Cathay Dow  Cathay Taiwan

Good diversification

The 3 months correlation between Cathay and Cathay is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding Cathay Dow Jones and Cathay Taiwan 5G in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cathay Taiwan 5G and Cathay Dow 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 Dow Jones are associated (or correlated) with Cathay Taiwan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cathay Taiwan 5G has no effect on the direction of Cathay Dow i.e., Cathay Dow and Cathay Taiwan go up and down completely randomly.

Pair Corralation between Cathay Dow and Cathay Taiwan

Assuming the 90 days trading horizon Cathay Dow Jones is expected to under-perform the Cathay Taiwan. But the etf apears to be less risky and, when comparing its historical volatility, Cathay Dow Jones is 1.57 times less risky than Cathay Taiwan. The etf trades about -0.08 of its potential returns per unit of risk. The Cathay Taiwan 5G is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  2,366  in Cathay Taiwan 5G on December 2, 2024 and sell it today you would earn a total of  47.00  from holding Cathay Taiwan 5G or generate 1.99% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.25%
Values	Daily Returns

Cathay Dow Jones  vs.  Cathay Taiwan 5G

Cathay Dow Jones

Risk-Adjusted Performance

Very Weak

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

Cathay Taiwan 5G

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Cathay Taiwan 5G are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Cathay Taiwan is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Cathay Dow and Cathay Taiwan

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

The idea behind Cathay Dow Jones and Cathay Taiwan 5G 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.

Check out your portfolio center.

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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.