Correlation Between Cathay TIP and YuantaP Shares

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

By analyzing existing cross correlation between Cathay TIP TAIEX and YuantaP shares Taiwan Top, you can compare the effects of market volatilities on Cathay TIP and YuantaP Shares 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 TIP with a short position of YuantaP Shares. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cathay TIP and YuantaP Shares.

Diversification Opportunities for Cathay TIP and YuantaP Shares

0.65

Correlation Coefficient

Cathay TIP  YuantaP Shares

Poor diversification

The 3 months correlation between Cathay and YuantaP is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Cathay TIP TAIEX and YuantaP shares Taiwan Top in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on YuantaP shares Taiwan and Cathay TIP 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 TIP TAIEX are associated (or correlated) with YuantaP Shares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of YuantaP shares Taiwan has no effect on the direction of Cathay TIP i.e., Cathay TIP and YuantaP Shares go up and down completely randomly.

Pair Corralation between Cathay TIP and YuantaP Shares

Assuming the 90 days trading horizon Cathay TIP is expected to generate 2.29 times less return on investment than YuantaP Shares. But when comparing it to its historical volatility, Cathay TIP TAIEX is 2.38 times less risky than YuantaP Shares. It trades about 0.14 of its potential returns per unit of risk. YuantaP shares Taiwan Top is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  17,830  in YuantaP shares Taiwan Top on September 12, 2024 and sell it today you would earn a total of  1,630  from holding YuantaP shares Taiwan Top or generate 9.14% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.16%
Values	Daily Returns

Cathay TIP TAIEX  vs.  YuantaP shares Taiwan Top

Cathay TIP TAIEX

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Cathay TIP TAIEX are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Cathay TIP is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

YuantaP shares Taiwan

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in YuantaP shares Taiwan Top are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, YuantaP Shares may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Cathay TIP and YuantaP Shares

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

The idea behind Cathay TIP TAIEX and YuantaP shares Taiwan Top 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.