Correlation Between Cathay TIP and Paradigm

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

Diversification Opportunities for Cathay TIP and Paradigm

-0.07

Correlation Coefficient

Cathay TIP  Paradigm

Good diversification

The 3 months correlation between Cathay and Paradigm is -0.07. Overlapping area represents the amount of risk that can be diversified away by holding Cathay TIP TAIEX and Paradigm SP GSCI in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Paradigm SP GSCI 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 Paradigm. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Paradigm SP GSCI has no effect on the direction of Cathay TIP i.e., Cathay TIP and Paradigm go up and down completely randomly.

Pair Corralation between Cathay TIP and Paradigm

Assuming the 90 days trading horizon Cathay TIP TAIEX is expected to generate 0.63 times more return on investment than Paradigm. However, Cathay TIP TAIEX is 1.58 times less risky than Paradigm. It trades about 0.09 of its potential returns per unit of risk. Paradigm SP GSCI is currently generating about -0.04 per unit of risk. If you would invest  2,155  in Cathay TIP TAIEX on September 14, 2024 and sell it today you would earn a total of  795.00  from holding Cathay TIP TAIEX or generate 36.89% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.79%
Values	Daily Returns

Cathay TIP TAIEX  vs.  Paradigm SP GSCI

Cathay TIP TAIEX

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Cathay TIP TAIEX are ranked lower than 8 (%) 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 newest stock price uproar, may contribute to short-horizon losses for the private investors.

Paradigm SP GSCI

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Paradigm SP GSCI has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Paradigm is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Cathay TIP and Paradigm

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

The idea behind Cathay TIP TAIEX and Paradigm SP GSCI 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.