Correlation Between Cathay Nikkei and Yuanta Daily

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

By analyzing existing cross correlation between Cathay Nikkei 225 and Yuanta Daily CSI, you can compare the effects of market volatilities on Cathay Nikkei and Yuanta Daily 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 Nikkei with a short position of Yuanta Daily. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cathay Nikkei and Yuanta Daily.

Diversification Opportunities for Cathay Nikkei and Yuanta Daily

0.74

Correlation Coefficient

Cathay Nikkei  Yuanta Daily

Poor diversification

The 3 months correlation between Cathay and Yuanta is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Cathay Nikkei 225 and Yuanta Daily CSI in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Yuanta Daily CSI and Cathay Nikkei 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 Nikkei 225 are associated (or correlated) with Yuanta Daily. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Yuanta Daily CSI has no effect on the direction of Cathay Nikkei i.e., Cathay Nikkei and Yuanta Daily go up and down completely randomly.

Pair Corralation between Cathay Nikkei and Yuanta Daily

Assuming the 90 days trading horizon Cathay Nikkei is expected to generate 16.74 times less return on investment than Yuanta Daily. But when comparing it to its historical volatility, Cathay Nikkei 225 is 3.9 times less risky than Yuanta Daily. It trades about 0.03 of its potential returns per unit of risk. Yuanta Daily CSI is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  1,213  in Yuanta Daily CSI on September 4, 2024 and sell it today you would earn a total of  371.00  from holding Yuanta Daily CSI or generate 30.59% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Cathay Nikkei 225  vs.  Yuanta Daily CSI

Cathay Nikkei 225

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Cathay Nikkei 225 are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Cathay Nikkei is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Yuanta Daily CSI

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Yuanta Daily CSI are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Yuanta Daily sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Cathay Nikkei and Yuanta Daily

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

The idea behind Cathay Nikkei 225 and Yuanta Daily CSI 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.