Correlation Between Cathay Taiwan and Yuanta Daily

Can any of the company-specific risk be diversified away by investing in both Cathay Taiwan 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 Taiwan 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 Taiwan 5G and Yuanta Daily Taiwan, you can compare the effects of market volatilities on Cathay Taiwan 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 Taiwan with a short position of Yuanta Daily. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cathay Taiwan and Yuanta Daily.

Diversification Opportunities for Cathay Taiwan and Yuanta Daily

0.71

Correlation Coefficient

Cathay Taiwan  Yuanta Daily

Poor diversification

The 3 months correlation between Cathay and Yuanta is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Cathay Taiwan 5G and Yuanta Daily Taiwan in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Yuanta Daily Taiwan 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 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 Taiwan has no effect on the direction of Cathay Taiwan i.e., Cathay Taiwan and Yuanta Daily go up and down completely randomly.

Pair Corralation between Cathay Taiwan and Yuanta Daily

Assuming the 90 days trading horizon Cathay Taiwan is expected to generate 1.53 times less return on investment than Yuanta Daily. But when comparing it to its historical volatility, Cathay Taiwan 5G is 1.81 times less risky than Yuanta Daily. It trades about 0.15 of its potential returns per unit of risk. Yuanta Daily Taiwan is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  20,565  in Yuanta Daily Taiwan on September 5, 2024 and sell it today you would earn a total of  3,550  from holding Yuanta Daily Taiwan or generate 17.26% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	93.65%
Values	Daily Returns

Cathay Taiwan 5G  vs.  Yuanta Daily Taiwan

Cathay Taiwan 5G

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Cathay Taiwan 5G are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively abnormal basic indicators, Cathay Taiwan may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Yuanta Daily Taiwan

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Yuanta Daily Taiwan are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain basic indicators, Yuanta Daily sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Cathay Taiwan and Yuanta Daily

The main advantage of trading using opposite Cathay Taiwan and Yuanta Daily positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cathay Taiwan 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 Taiwan 5G and Yuanta Daily Taiwan 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.