Correlation Between Cathay TIP and Cathay Nasdaq

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

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

Diversification Opportunities for Cathay TIP and Cathay Nasdaq

0.57

Correlation Coefficient

Cathay TIP  Cathay Nasdaq

Very weak diversification

The 3 months correlation between Cathay and Cathay is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Cathay TIP TAIEX and Cathay Nasdaq AI in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cathay Nasdaq AI and Cathay TIP 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 TIP TAIEX are associated (or correlated) with Cathay Nasdaq. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cathay Nasdaq AI has no effect on the direction of Cathay TIP i.e., Cathay TIP and Cathay Nasdaq go up and down completely randomly.

Pair Corralation between Cathay TIP and Cathay Nasdaq

Assuming the 90 days trading horizon Cathay TIP is expected to generate 7.54 times less return on investment than Cathay Nasdaq. But when comparing it to its historical volatility, Cathay TIP TAIEX is 2.1 times less risky than Cathay Nasdaq. It trades about 0.04 of its potential returns per unit of risk. Cathay Nasdaq AI is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  3,041  in Cathay Nasdaq AI on September 2, 2024 and sell it today you would earn a total of  316.00  from holding Cathay Nasdaq AI or generate 10.39% return on investment over 90 days.

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

Cathay TIP TAIEX  vs.  Cathay Nasdaq AI

Cathay TIP TAIEX

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Cathay TIP TAIEX are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Cathay TIP is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Cathay Nasdaq AI

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Cathay Nasdaq AI are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Cathay Nasdaq may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Cathay TIP and Cathay Nasdaq

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

The idea behind Cathay TIP TAIEX and Cathay Nasdaq AI 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.