Correlation Between Cathay Taiwan and Paradigm

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

Diversification Opportunities for Cathay Taiwan and Paradigm

0.08

Correlation Coefficient

Cathay Taiwan  Paradigm

Significant diversification

The 3 months correlation between Cathay and Paradigm is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Cathay Taiwan 5G and Paradigm SP GSCI in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Paradigm SP GSCI 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 Paradigm. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Paradigm SP GSCI has no effect on the direction of Cathay Taiwan i.e., Cathay Taiwan and Paradigm go up and down completely randomly.

Pair Corralation between Cathay Taiwan and Paradigm

Assuming the 90 days trading horizon Cathay Taiwan 5G is expected to under-perform the Paradigm. But the etf apears to be less risky and, when comparing its historical volatility, Cathay Taiwan 5G is 1.04 times less risky than Paradigm. The etf trades about -0.01 of its potential returns per unit of risk. The Paradigm SP GSCI is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  1,988  in Paradigm SP GSCI on December 4, 2024 and sell it today you would lose (11.00) from holding Paradigm SP GSCI or give up 0.55% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.21%
Values	Daily Returns

Cathay Taiwan 5G  vs.  Paradigm SP GSCI

Cathay Taiwan 5G

Risk-Adjusted Performance

Very Weak

Over the last 90 days Cathay Taiwan 5G has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Cathay Taiwan is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Paradigm SP GSCI

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Cathay Taiwan and Paradigm

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

The idea behind Cathay Taiwan 5G and Paradigm SP GSCI 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.