Correlation Between Fuh Hwa and Cathay Taiwan

Can any of the company-specific risk be diversified away by investing in both Fuh Hwa and Cathay Taiwan 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 Fuh Hwa and Cathay Taiwan into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Fuh Hwa Emerging and Cathay Taiwan 5G, you can compare the effects of market volatilities on Fuh Hwa and Cathay Taiwan 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 Fuh Hwa with a short position of Cathay Taiwan. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fuh Hwa and Cathay Taiwan.

Diversification Opportunities for Fuh Hwa and Cathay Taiwan

-0.87

Correlation Coefficient

Fuh Hwa  Cathay Taiwan

Pay attention - limited upside

The 3 months correlation between Fuh and Cathay is -0.87. Overlapping area represents the amount of risk that can be diversified away by holding Fuh Hwa Emerging and Cathay Taiwan 5G in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cathay Taiwan 5G and Fuh Hwa 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 Fuh Hwa Emerging are associated (or correlated) with Cathay Taiwan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cathay Taiwan 5G has no effect on the direction of Fuh Hwa i.e., Fuh Hwa and Cathay Taiwan go up and down completely randomly.

Pair Corralation between Fuh Hwa and Cathay Taiwan

Assuming the 90 days trading horizon Fuh Hwa is expected to generate 24.4 times less return on investment than Cathay Taiwan. But when comparing it to its historical volatility, Fuh Hwa Emerging is 2.74 times less risky than Cathay Taiwan. It trades about 0.01 of its potential returns per unit of risk. Cathay Taiwan 5G is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  1,244  in Cathay Taiwan 5G on September 5, 2024 and sell it today you would earn a total of  1,196  from holding Cathay Taiwan 5G or generate 96.14% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	98.54%
Values	Daily Returns

Fuh Hwa Emerging  vs.  Cathay Taiwan 5G

Fuh Hwa Emerging

Risk-Adjusted Performance

0 of 100

Very Weak

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

Cathay Taiwan 5G

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Cathay Taiwan 5G are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively abnormal basic indicators, Cathay Taiwan may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Fuh Hwa and Cathay Taiwan

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

The idea behind Fuh Hwa Emerging and Cathay Taiwan 5G 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.

Check out your portfolio center.

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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.