Correlation Between Fubon MSCI and Cathay Taiwan

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

Diversification Opportunities for Fubon MSCI and Cathay Taiwan

0.85

Correlation Coefficient

Fubon MSCI  Cathay Taiwan

Very poor diversification

The 3 months correlation between Fubon and Cathay is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Fubon MSCI Taiwan and Cathay Taiwan 5G in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cathay Taiwan 5G 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 Cathay Taiwan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cathay Taiwan 5G has no effect on the direction of Fubon MSCI i.e., Fubon MSCI and Cathay Taiwan go up and down completely randomly.

Pair Corralation between Fubon MSCI and Cathay Taiwan

Assuming the 90 days trading horizon Fubon MSCI is expected to generate 1.17 times less return on investment than Cathay Taiwan. In addition to that, Fubon MSCI is 1.1 times more volatile than Cathay Taiwan 5G. It trades about 0.1 of its total potential returns per unit of risk. Cathay Taiwan 5G is currently generating about 0.13 per unit of volatility. If you would invest  2,263  in Cathay Taiwan 5G on September 13, 2024 and sell it today you would earn a total of  192.00  from holding Cathay Taiwan 5G or generate 8.48% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	95.16%
Values	Daily Returns

Fubon MSCI Taiwan  vs.  Cathay Taiwan 5G

Fubon MSCI Taiwan

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Fubon MSCI Taiwan are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Fubon MSCI may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Cathay Taiwan 5G

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Cathay Taiwan 5G are ranked lower than 10 (%) 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.

Pair Trading with Fubon MSCI and Cathay Taiwan

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

The idea behind Fubon MSCI Taiwan and Cathay Taiwan 5G 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.