Correlation Between Fubon MSCI and Hong Yi

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

Diversification Opportunities for Fubon MSCI and Hong Yi

-0.35

Correlation Coefficient

Fubon MSCI  Hong Yi

Very good diversification

The 3 months correlation between Fubon and Hong is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Fubon MSCI Taiwan and Hong Yi Fiber in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hong Yi Fiber 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 Hong Yi. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hong Yi Fiber has no effect on the direction of Fubon MSCI i.e., Fubon MSCI and Hong Yi go up and down completely randomly.

Pair Corralation between Fubon MSCI and Hong Yi

Assuming the 90 days trading horizon Fubon MSCI Taiwan is expected to generate 1.72 times more return on investment than Hong Yi. However, Fubon MSCI is 1.72 times more volatile than Hong Yi Fiber. It trades about 0.11 of its potential returns per unit of risk. Hong Yi Fiber is currently generating about -0.13 per unit of risk. If you would invest  13,240  in Fubon MSCI Taiwan on September 16, 2024 and sell it today you would earn a total of  1,125  from holding Fubon MSCI Taiwan or generate 8.5% 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.  Hong Yi Fiber

Fubon MSCI Taiwan

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Fubon MSCI Taiwan are ranked lower than 8 (%) 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.

Hong Yi Fiber

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Fubon MSCI and Hong Yi

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

The idea behind Fubon MSCI Taiwan and Hong Yi Fiber 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.

Check out your portfolio center.

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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.