Correlation Between Cathay SP and Cathay TIP

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

By analyzing existing cross correlation between Cathay SP North and Cathay TIP TAIEX, you can compare the effects of market volatilities on Cathay SP and Cathay TIP 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 SP with a short position of Cathay TIP. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cathay SP and Cathay TIP.

Diversification Opportunities for Cathay SP and Cathay TIP

0.57

Correlation Coefficient

Cathay SP  Cathay TIP

Very weak diversification

The 3 months correlation between Cathay and Cathay is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Cathay SP North and Cathay TIP TAIEX in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cathay TIP TAIEX and Cathay SP 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 SP North are associated (or correlated) with Cathay TIP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cathay TIP TAIEX has no effect on the direction of Cathay SP i.e., Cathay SP and Cathay TIP go up and down completely randomly.

Pair Corralation between Cathay SP and Cathay TIP

Assuming the 90 days trading horizon Cathay SP North is expected to generate 2.08 times more return on investment than Cathay TIP. However, Cathay SP is 2.08 times more volatile than Cathay TIP TAIEX. It trades about 0.24 of its potential returns per unit of risk. Cathay TIP TAIEX is currently generating about 0.11 per unit of risk. If you would invest  4,535  in Cathay SP North on September 14, 2024 and sell it today you would earn a total of  715.00  from holding Cathay SP North or generate 15.77% return on investment over 90 days.

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

Cathay SP North  vs.  Cathay TIP TAIEX

Cathay SP North

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Cathay SP North are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Cathay SP unveiled solid returns over the last few months and may actually be approaching a breakup point.

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.

Pair Trading with Cathay SP and Cathay TIP

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

The idea behind Cathay SP North and Cathay TIP TAIEX 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.