Correlation Between Cathay Taiwan and CTBC Treasury

Can any of the company-specific risk be diversified away by investing in both Cathay Taiwan and CTBC Treasury 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 CTBC Treasury 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 CTBC Treasury 20, you can compare the effects of market volatilities on Cathay Taiwan and CTBC Treasury 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 CTBC Treasury. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cathay Taiwan and CTBC Treasury.

Diversification Opportunities for Cathay Taiwan and CTBC Treasury

-0.54

Correlation Coefficient

Cathay Taiwan  CTBC Treasury

Excellent diversification

The 3 months correlation between Cathay and CTBC is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding Cathay Taiwan 5G and CTBC Treasury 20 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CTBC Treasury 20 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 CTBC Treasury. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CTBC Treasury 20 has no effect on the direction of Cathay Taiwan i.e., Cathay Taiwan and CTBC Treasury go up and down completely randomly.

Pair Corralation between Cathay Taiwan and CTBC Treasury

Assuming the 90 days trading horizon Cathay Taiwan 5G is expected to under-perform the CTBC Treasury. In addition to that, Cathay Taiwan is 1.59 times more volatile than CTBC Treasury 20. It trades about -0.08 of its total potential returns per unit of risk. CTBC Treasury 20 is currently generating about 0.11 per unit of volatility. If you would invest  2,864  in CTBC Treasury 20 on December 23, 2024 and sell it today you would earn a total of  140.00  from holding CTBC Treasury 20 or generate 4.89% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	96.49%
Values	Daily Returns

Cathay Taiwan 5G  vs.  CTBC Treasury 20

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 latest uncertain 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.

CTBC Treasury 20

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in CTBC Treasury 20 are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, CTBC Treasury 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 CTBC Treasury

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

The idea behind Cathay Taiwan 5G and CTBC Treasury 20 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.