Correlation Between Cathay Sustainability and CTBC Enhanced

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

By analyzing existing cross correlation between Cathay Sustainability High and CTBC Enhanced Yield, you can compare the effects of market volatilities on Cathay Sustainability and CTBC Enhanced 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 Sustainability with a short position of CTBC Enhanced. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cathay Sustainability and CTBC Enhanced.

Diversification Opportunities for Cathay Sustainability and CTBC Enhanced

0.45

Correlation Coefficient

Cathay Sustainability  CTBC Enhanced

Very weak diversification

The 3 months correlation between Cathay and CTBC is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Cathay Sustainability High and CTBC Enhanced Yield in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CTBC Enhanced Yield and Cathay Sustainability 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 Sustainability High are associated (or correlated) with CTBC Enhanced. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CTBC Enhanced Yield has no effect on the direction of Cathay Sustainability i.e., Cathay Sustainability and CTBC Enhanced go up and down completely randomly.

Pair Corralation between Cathay Sustainability and CTBC Enhanced

Assuming the 90 days trading horizon Cathay Sustainability is expected to generate 2.57 times less return on investment than CTBC Enhanced. But when comparing it to its historical volatility, Cathay Sustainability High is 1.0 times less risky than CTBC Enhanced. It trades about 0.04 of its potential returns per unit of risk. CTBC Enhanced Yield is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  982.00  in CTBC Enhanced Yield on December 23, 2024 and sell it today you would earn a total of  32.00  from holding CTBC Enhanced Yield or generate 3.26% return on investment over 90 days.

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

Cathay Sustainability High  vs.  CTBC Enhanced Yield

Cathay Sustainability

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Cathay Sustainability High are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Cathay Sustainability is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

CTBC Enhanced Yield

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in CTBC Enhanced Yield are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, CTBC Enhanced is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Cathay Sustainability and CTBC Enhanced

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

The idea behind Cathay Sustainability High and CTBC Enhanced Yield 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.