Correlation Between Cathay Taiwan and Capital BofA

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

Diversification Opportunities for Cathay Taiwan and Capital BofA

-0.19

Correlation Coefficient

Cathay Taiwan  Capital BofA

Good diversification

The 3 months correlation between Cathay and Capital is -0.19. Overlapping area represents the amount of risk that can be diversified away by holding Cathay Taiwan 5G and Capital BofA Merrill in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capital BofA Merrill 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 Capital BofA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Capital BofA Merrill has no effect on the direction of Cathay Taiwan i.e., Cathay Taiwan and Capital BofA go up and down completely randomly.

Pair Corralation between Cathay Taiwan and Capital BofA

Assuming the 90 days trading horizon Cathay Taiwan is expected to generate 1.07 times less return on investment than Capital BofA. In addition to that, Cathay Taiwan is 2.07 times more volatile than Capital BofA Merrill. It trades about 0.1 of its total potential returns per unit of risk. Capital BofA Merrill is currently generating about 0.22 per unit of volatility. If you would invest  3,529  in Capital BofA Merrill on December 4, 2024 and sell it today you would earn a total of  70.00  from holding Capital BofA Merrill or generate 1.98% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.24%
Values	Daily Returns

Cathay Taiwan 5G  vs.  Capital BofA Merrill

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.

Capital BofA Merrill

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Capital BofA Merrill are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Capital BofA 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 Taiwan and Capital BofA

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

The idea behind Cathay Taiwan 5G and Capital BofA Merrill 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.