Correlation Between Cathay Taiwan and Capital Ice

Can any of the company-specific risk be diversified away by investing in both Cathay Taiwan and Capital Ice 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 Capital Ice 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 Capital Ice 7, you can compare the effects of market volatilities on Cathay Taiwan and Capital Ice 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 Capital Ice. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cathay Taiwan and Capital Ice.

Diversification Opportunities for Cathay Taiwan and Capital Ice

-0.42

Correlation Coefficient

Cathay Taiwan  Capital Ice

Very good diversification

The 3 months correlation between Cathay and Capital is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding Cathay Taiwan 5G and Capital Ice 7 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capital Ice 7 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 Capital Ice. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Capital Ice 7 has no effect on the direction of Cathay Taiwan i.e., Cathay Taiwan and Capital Ice go up and down completely randomly.

Pair Corralation between Cathay Taiwan and Capital Ice

Assuming the 90 days trading horizon Cathay Taiwan 5G is expected to under-perform the Capital Ice. In addition to that, Cathay Taiwan is 3.32 times more volatile than Capital Ice 7. It trades about -0.02 of its total potential returns per unit of risk. Capital Ice 7 is currently generating about 0.04 per unit of volatility. If you would invest  4,149  in Capital Ice 7 on September 5, 2024 and sell it today you would earn a total of  12.00  from holding Capital Ice 7 or generate 0.29% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	95.65%
Values	Daily Returns

Cathay Taiwan 5G  vs.  Capital Ice 7

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.

Capital Ice 7

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Capital Ice 7 are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Capital Ice is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Cathay Taiwan and Capital Ice

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

The idea behind Cathay Taiwan 5G and Capital Ice 7 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.