Correlation Between Cathay Taiwan and Fubon NIFTY

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

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

Diversification Opportunities for Cathay Taiwan and Fubon NIFTY

-0.73

Correlation Coefficient

Cathay Taiwan  Fubon NIFTY

Pay attention - limited upside

The 3 months correlation between Cathay and Fubon is -0.73. Overlapping area represents the amount of risk that can be diversified away by holding Cathay Taiwan 5G and Fubon NIFTY in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fubon NIFTY and Cathay Taiwan 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 Taiwan 5G are associated (or correlated) with Fubon NIFTY. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fubon NIFTY has no effect on the direction of Cathay Taiwan i.e., Cathay Taiwan and Fubon NIFTY go up and down completely randomly.

Pair Corralation between Cathay Taiwan and Fubon NIFTY

Assuming the 90 days trading horizon Cathay Taiwan is expected to generate 1.74 times less return on investment than Fubon NIFTY. But when comparing it to its historical volatility, Cathay Taiwan 5G is 1.08 times less risky than Fubon NIFTY. It trades about 0.12 of its potential returns per unit of risk. Fubon NIFTY is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  3,736  in Fubon NIFTY on September 17, 2024 and sell it today you would earn a total of  161.00  from holding Fubon NIFTY or generate 4.31% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	90.91%
Values	Daily Returns

Cathay Taiwan 5G  vs.  Fubon NIFTY

Cathay Taiwan 5G

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Cathay Taiwan 5G are ranked lower than 12 (%) 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.

Fubon NIFTY

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Cathay Taiwan and Fubon NIFTY

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

The idea behind Cathay Taiwan 5G and Fubon NIFTY 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..