Correlation Between Cathay TIP and Cathay DJIA

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

Diversification Opportunities for Cathay TIP and Cathay DJIA

-0.26

Correlation Coefficient

Cathay TIP  Cathay DJIA

Very good diversification

The 3 months correlation between Cathay and Cathay is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding Cathay TIP TAIEX and Cathay DJIA Inv in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cathay DJIA Inv 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 DJIA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cathay DJIA Inv has no effect on the direction of Cathay TIP i.e., Cathay TIP and Cathay DJIA go up and down completely randomly.

Pair Corralation between Cathay TIP and Cathay DJIA

Assuming the 90 days trading horizon Cathay TIP TAIEX is expected to under-perform the Cathay DJIA. In addition to that, Cathay TIP is 1.17 times more volatile than Cathay DJIA Inv. It trades about -0.07 of its total potential returns per unit of risk. Cathay DJIA Inv is currently generating about 0.08 per unit of volatility. If you would invest  631.00  in Cathay DJIA Inv on December 4, 2024 and sell it today you would earn a total of  24.00  from holding Cathay DJIA Inv or generate 3.8% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.21%
Values	Daily Returns

Cathay TIP TAIEX  vs.  Cathay DJIA Inv

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 DJIA Inv

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Cathay DJIA Inv are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Cathay DJIA is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Cathay TIP and Cathay DJIA

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

The idea behind Cathay TIP TAIEX and Cathay DJIA Inv 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.