Correlation Between Cathay TIP and Cathay TAIEX

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

Diversification Opportunities for Cathay TIP and Cathay TAIEX

0.01

Correlation Coefficient

Cathay TIP  Cathay TAIEX

Significant diversification

The 3 months correlation between Cathay and Cathay is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding Cathay TIP TAIEX and Cathay TAIEX Daily in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cathay TAIEX Daily 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 TAIEX. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cathay TAIEX Daily has no effect on the direction of Cathay TIP i.e., Cathay TIP and Cathay TAIEX go up and down completely randomly.

Pair Corralation between Cathay TIP and Cathay TAIEX

Assuming the 90 days trading horizon Cathay TIP TAIEX is expected to under-perform the Cathay TAIEX. But the etf apears to be less risky and, when comparing its historical volatility, Cathay TIP TAIEX is 1.11 times less risky than Cathay TAIEX. The etf trades about -0.05 of its potential returns per unit of risk. The Cathay TAIEX Daily is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  369.00  in Cathay TAIEX Daily on December 29, 2024 and sell it today you would earn a total of  25.00  from holding Cathay TAIEX Daily or generate 6.78% return on investment over 90 days.

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

Cathay TIP TAIEX  vs.  Cathay TAIEX Daily

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 TAIEX Daily

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Cathay TAIEX Daily are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain basic indicators, Cathay TAIEX may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Cathay TIP and Cathay TAIEX

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

The idea behind Cathay TIP TAIEX and Cathay 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.