Correlation Between Cathay Taiwan and Yuanta STOXX

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

Diversification Opportunities for Cathay Taiwan and Yuanta STOXX

0.07

Correlation Coefficient

Cathay Taiwan  Yuanta STOXX

Significant diversification

The 3 months correlation between Cathay and Yuanta is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Cathay Taiwan 5G and Yuanta STOXX Global in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Yuanta STOXX Global 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 Yuanta STOXX. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Yuanta STOXX Global has no effect on the direction of Cathay Taiwan i.e., Cathay Taiwan and Yuanta STOXX go up and down completely randomly.

Pair Corralation between Cathay Taiwan and Yuanta STOXX

Assuming the 90 days trading horizon Cathay Taiwan 5G is expected to generate 0.69 times more return on investment than Yuanta STOXX. However, Cathay Taiwan 5G is 1.44 times less risky than Yuanta STOXX. It trades about 0.1 of its potential returns per unit of risk. Yuanta STOXX Global is currently generating about -0.23 per unit of risk. If you would invest  2,341  in Cathay Taiwan 5G on December 5, 2024 and sell it today you would earn a total of  40.00  from holding Cathay Taiwan 5G or generate 1.71% return on investment over 90 days.

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

Cathay Taiwan 5G  vs.  Yuanta STOXX Global

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.

Yuanta STOXX Global

Risk-Adjusted Performance

Very Weak

Over the last 90 days Yuanta STOXX Global has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Etf's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the exchange-traded fund private investors.

Pair Trading with Cathay Taiwan and Yuanta STOXX

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

The idea behind Cathay Taiwan 5G and Yuanta STOXX Global 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.