Correlation Between Cathay Taiwan and Fubon NASDAQ

Can any of the company-specific risk be diversified away by investing in both Cathay Taiwan and Fubon NASDAQ 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 NASDAQ 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 NASDAQ 100 Index, you can compare the effects of market volatilities on Cathay Taiwan and Fubon NASDAQ 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 NASDAQ. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cathay Taiwan and Fubon NASDAQ.

Diversification Opportunities for Cathay Taiwan and Fubon NASDAQ

0.71

Correlation Coefficient

Cathay Taiwan  Fubon NASDAQ

Poor diversification

The 3 months correlation between Cathay and Fubon is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Cathay Taiwan 5G and Fubon NASDAQ 100 Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fubon NASDAQ 100 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 NASDAQ. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fubon NASDAQ 100 has no effect on the direction of Cathay Taiwan i.e., Cathay Taiwan and Fubon NASDAQ go up and down completely randomly.

Pair Corralation between Cathay Taiwan and Fubon NASDAQ

Assuming the 90 days trading horizon Cathay Taiwan is expected to generate 1.28 times less return on investment than Fubon NASDAQ. In addition to that, Cathay Taiwan is 1.18 times more volatile than Fubon NASDAQ 100 Index. It trades about 0.13 of its total potential returns per unit of risk. Fubon NASDAQ 100 Index is currently generating about 0.19 per unit of volatility. If you would invest  8,000  in Fubon NASDAQ 100 Index on September 16, 2024 and sell it today you would earn a total of  955.00  from holding Fubon NASDAQ 100 Index or generate 11.94% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	93.75%
Values	Daily Returns

Cathay Taiwan 5G  vs.  Fubon NASDAQ 100 Index

Cathay Taiwan 5G

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Cathay Taiwan 5G are ranked lower than 10 (%) 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 NASDAQ 100

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Fubon NASDAQ 100 Index are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Fubon NASDAQ may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Cathay Taiwan and Fubon NASDAQ

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

The idea behind Cathay Taiwan 5G and Fubon NASDAQ 100 Index 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.