Correlation Between Cathay TIP and Cathay Nikkei

Can any of the company-specific risk be diversified away by investing in both Cathay TIP and Cathay Nikkei 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 Cathay Nikkei 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 Cathay Nikkei 225, you can compare the effects of market volatilities on Cathay TIP and Cathay Nikkei 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 Cathay Nikkei. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cathay TIP and Cathay Nikkei.

Diversification Opportunities for Cathay TIP and Cathay Nikkei

0.41

Correlation Coefficient

Cathay TIP  Cathay Nikkei

Very weak diversification

The 3 months correlation between Cathay and Cathay is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Cathay TIP TAIEX and Cathay Nikkei 225 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cathay Nikkei 225 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 Cathay Nikkei. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cathay Nikkei 225 has no effect on the direction of Cathay TIP i.e., Cathay TIP and Cathay Nikkei go up and down completely randomly.

Pair Corralation between Cathay TIP and Cathay Nikkei

Assuming the 90 days trading horizon Cathay TIP TAIEX is expected to generate 0.91 times more return on investment than Cathay Nikkei. However, Cathay TIP TAIEX is 1.1 times less risky than Cathay Nikkei. It trades about -0.09 of its potential returns per unit of risk. Cathay Nikkei 225 is currently generating about -0.09 per unit of risk. If you would invest  2,958  in Cathay TIP TAIEX on December 4, 2024 and sell it today you would lose (150.00) from holding Cathay TIP TAIEX or give up 5.07% of portfolio value over 90 days.

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

Cathay TIP TAIEX  vs.  Cathay Nikkei 225

Cathay TIP TAIEX

Risk-Adjusted Performance

Very Weak

Over the last 90 days Cathay TIP TAIEX has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Cathay TIP is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Cathay Nikkei 225

Risk-Adjusted Performance

Very Weak

Over the last 90 days Cathay Nikkei 225 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain 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 TIP and Cathay Nikkei

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

The idea behind Cathay TIP TAIEX and Cathay Nikkei 225 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.