Correlation Between Cathay Taiwan and Capital ICE

Can any of the company-specific risk be diversified away by investing in both Cathay Taiwan and Capital ICE 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 ICE 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 ICE 15, you can compare the effects of market volatilities on Cathay Taiwan and Capital ICE 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 ICE. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cathay Taiwan and Capital ICE.

Diversification Opportunities for Cathay Taiwan and Capital ICE

-0.35

Correlation Coefficient

Cathay Taiwan  Capital ICE

Very good diversification

The 3 months correlation between Cathay and Capital is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Cathay Taiwan 5G and Capital ICE 15 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capital ICE 15 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 ICE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Capital ICE 15 has no effect on the direction of Cathay Taiwan i.e., Cathay Taiwan and Capital ICE go up and down completely randomly.

Pair Corralation between Cathay Taiwan and Capital ICE

Assuming the 90 days trading horizon Cathay Taiwan is expected to generate 1.37 times less return on investment than Capital ICE. In addition to that, Cathay Taiwan is 1.59 times more volatile than Capital ICE 15. It trades about 0.1 of its total potential returns per unit of risk. Capital ICE 15 is currently generating about 0.22 per unit of volatility. If you would invest  3,611  in Capital ICE 15 on December 5, 2024 and sell it today you would earn a total of  92.00  from holding Capital ICE 15 or generate 2.55% 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 ICE 15

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 ICE 15

Risk-Adjusted Performance

Very Weak

Over the last 90 days Capital ICE 15 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Capital ICE 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 ICE

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

The idea behind Cathay Taiwan 5G and Capital ICE 15 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.

Check out your portfolio center.

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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.