Correlation Between Cathay DJIA and Capital Taiex

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

Diversification Opportunities for Cathay DJIA and Capital Taiex

0.64

Correlation Coefficient

Cathay DJIA  Capital Taiex

Poor diversification

The 3 months correlation between Cathay and Capital is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Cathay DJIA Inv 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 DJIA 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 DJIA Inv 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 DJIA i.e., Cathay DJIA and Capital Taiex go up and down completely randomly.

Pair Corralation between Cathay DJIA and Capital Taiex

Assuming the 90 days trading horizon Cathay DJIA Inv is expected to under-perform the Capital Taiex. But the etf apears to be less risky and, when comparing its historical volatility, Cathay DJIA Inv is 1.55 times less risky than Capital Taiex. The etf trades about -0.19 of its potential returns per unit of risk. The Capital Taiex Daily is currently generating about -0.12 of returns per unit of risk over similar time horizon. If you would invest  240.00  in Capital Taiex Daily on September 12, 2024 and sell it today you would lose (17.00) from holding Capital Taiex Daily or give up 7.08% of portfolio value over 90 days.

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

Cathay DJIA Inv  vs.  Capital Taiex Daily

Cathay DJIA Inv

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Cathay DJIA Inv has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest abnormal performance, the Etf's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the ETF investors.

Capital Taiex Daily

Risk-Adjusted Performance

0 of 100

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 latest abnormal performance, the Etf's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the ETF investors.

Pair Trading with Cathay DJIA and Capital Taiex

The main advantage of trading using opposite Cathay DJIA and Capital Taiex positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cathay DJIA 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 DJIA Inv 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.