Correlation Between Cathay TIP and Cathay Koreataiwan

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

Diversification Opportunities for Cathay TIP and Cathay Koreataiwan

0.05

Correlation Coefficient

Cathay TIP  Cathay Koreataiwan

Significant diversification

The 3 months correlation between Cathay and Cathay is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding Cathay TIP TAIEX and Cathay Koreataiwan IT in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cathay Koreataiwan 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 Koreataiwan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cathay Koreataiwan has no effect on the direction of Cathay TIP i.e., Cathay TIP and Cathay Koreataiwan go up and down completely randomly.

Pair Corralation between Cathay TIP and Cathay Koreataiwan

Assuming the 90 days trading horizon Cathay TIP TAIEX is expected to under-perform the Cathay Koreataiwan. But the etf apears to be less risky and, when comparing its historical volatility, Cathay TIP TAIEX is 1.21 times less risky than Cathay Koreataiwan. The etf trades about -0.06 of its potential returns per unit of risk. The Cathay Koreataiwan IT is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  3,284  in Cathay Koreataiwan IT on December 24, 2024 and sell it today you would earn a total of  6.00  from holding Cathay Koreataiwan IT or generate 0.18% 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 Koreataiwan IT

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 Koreataiwan

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Cathay TIP and Cathay Koreataiwan

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

The idea behind Cathay TIP TAIEX and Cathay Koreataiwan IT 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.