Correlation Between Taiwan Paiho and Cathay Consolidated

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

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

Diversification Opportunities for Taiwan Paiho and Cathay Consolidated

0.56

Correlation Coefficient

Taiwan Paiho  Cathay Consolidated

Very weak diversification

The 3 months correlation between Taiwan and Cathay is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Paiho and Cathay Consolidated in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cathay Consolidated and Taiwan Paiho 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 Taiwan Paiho are associated (or correlated) with Cathay Consolidated. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cathay Consolidated has no effect on the direction of Taiwan Paiho i.e., Taiwan Paiho and Cathay Consolidated go up and down completely randomly.

Pair Corralation between Taiwan Paiho and Cathay Consolidated

Assuming the 90 days trading horizon Taiwan Paiho is expected to under-perform the Cathay Consolidated. In addition to that, Taiwan Paiho is 1.14 times more volatile than Cathay Consolidated. It trades about 0.0 of its total potential returns per unit of risk. Cathay Consolidated is currently generating about 0.04 per unit of volatility. If you would invest  9,591  in Cathay Consolidated on December 28, 2024 and sell it today you would earn a total of  229.00  from holding Cathay Consolidated or generate 2.39% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.21%
Values	Daily Returns

Taiwan Paiho  vs.  Cathay Consolidated

Taiwan Paiho

Risk-Adjusted Performance

Very Weak

Over the last 90 days Taiwan Paiho has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Taiwan Paiho is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Cathay Consolidated

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Cathay Consolidated are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Cathay Consolidated is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Taiwan Paiho and Cathay Consolidated

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

The idea behind Taiwan Paiho and Cathay Consolidated 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.