Correlation Between Fubon MSCI and Capital BofA

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

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

Diversification Opportunities for Fubon MSCI and Capital BofA

-0.36

Correlation Coefficient

Fubon MSCI  Capital BofA

Very good diversification

The 3 months correlation between Fubon and Capital is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding Fubon MSCI Taiwan and Capital BofA Merrill in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capital BofA Merrill and Fubon MSCI 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 Fubon MSCI Taiwan are associated (or correlated) with Capital BofA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Capital BofA Merrill has no effect on the direction of Fubon MSCI i.e., Fubon MSCI and Capital BofA go up and down completely randomly.

Pair Corralation between Fubon MSCI and Capital BofA

Assuming the 90 days trading horizon Fubon MSCI Taiwan is expected to under-perform the Capital BofA. In addition to that, Fubon MSCI is 2.01 times more volatile than Capital BofA Merrill. It trades about -0.03 of its total potential returns per unit of risk. Capital BofA Merrill is currently generating about 0.01 per unit of volatility. If you would invest  3,923  in Capital BofA Merrill on December 4, 2024 and sell it today you would earn a total of  15.00  from holding Capital BofA Merrill or generate 0.38% return on investment over 90 days.

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

Fubon MSCI Taiwan  vs.  Capital BofA Merrill

Fubon MSCI Taiwan

Risk-Adjusted Performance

Very Weak

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

Capital BofA Merrill

Risk-Adjusted Performance

Weak

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

Pair Trading with Fubon MSCI and Capital BofA

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

The idea behind Fubon MSCI Taiwan and Capital BofA Merrill 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.