Correlation Between Information Technology and Cathay Taiwan

Can any of the company-specific risk be diversified away by investing in both Information Technology and Cathay Taiwan 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 Information Technology and Cathay Taiwan into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Information Technology Total and Cathay Taiwan 5G, you can compare the effects of market volatilities on Information Technology and Cathay Taiwan 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 Information Technology with a short position of Cathay Taiwan. Check out your portfolio center. Please also check ongoing floating volatility patterns of Information Technology and Cathay Taiwan.

Diversification Opportunities for Information Technology and Cathay Taiwan

0.69

Correlation Coefficient

Information Technology  Cathay Taiwan

Poor diversification

The 3 months correlation between Information and Cathay is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Information Technology Total and Cathay Taiwan 5G in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cathay Taiwan 5G and Information Technology 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 Information Technology Total are associated (or correlated) with Cathay Taiwan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cathay Taiwan 5G has no effect on the direction of Information Technology i.e., Information Technology and Cathay Taiwan go up and down completely randomly.

Pair Corralation between Information Technology and Cathay Taiwan

Assuming the 90 days trading horizon Information Technology is expected to generate 1.02 times less return on investment than Cathay Taiwan. In addition to that, Information Technology is 1.88 times more volatile than Cathay Taiwan 5G. It trades about 0.09 of its total potential returns per unit of risk. Cathay Taiwan 5G is currently generating about 0.18 per unit of volatility. If you would invest  2,183  in Cathay Taiwan 5G on September 11, 2024 and sell it today you would earn a total of  286.00  from holding Cathay Taiwan 5G or generate 13.1% return on investment over 90 days.

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

Information Technology Total  vs.  Cathay Taiwan 5G

Information Technology

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Information Technology Total are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Information Technology showed solid returns over the last few months and may actually be approaching a breakup point.

Cathay Taiwan 5G

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Cathay Taiwan 5G are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively abnormal basic indicators, Cathay Taiwan unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Information Technology and Cathay Taiwan

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

The idea behind Information Technology Total and Cathay Taiwan 5G 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.