Correlation Between Fubon MSCI and I Hwa

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

Diversification Opportunities for Fubon MSCI and I Hwa

-0.5

Correlation Coefficient

Fubon MSCI  I Hwa

Very good diversification

The 3 months correlation between Fubon and 1456 is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding Fubon MSCI Taiwan and I Hwa Industrial Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on I Hwa Industrial 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 I Hwa. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of I Hwa Industrial has no effect on the direction of Fubon MSCI i.e., Fubon MSCI and I Hwa go up and down completely randomly.

Pair Corralation between Fubon MSCI and I Hwa

Assuming the 90 days trading horizon Fubon MSCI Taiwan is expected to generate 0.57 times more return on investment than I Hwa. However, Fubon MSCI Taiwan is 1.75 times less risky than I Hwa. It trades about 0.13 of its potential returns per unit of risk. I Hwa Industrial Co is currently generating about -0.06 per unit of risk. If you would invest  12,750  in Fubon MSCI Taiwan on September 4, 2024 and sell it today you would earn a total of  1,330  from holding Fubon MSCI Taiwan or generate 10.43% return on investment over 90 days.

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

Fubon MSCI Taiwan  vs.  I Hwa Industrial Co

Fubon MSCI Taiwan

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Fubon MSCI Taiwan are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain basic indicators, Fubon MSCI may actually be approaching a critical reversion point that can send shares even higher in January 2025.

I Hwa Industrial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days I Hwa Industrial Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Pair Trading with Fubon MSCI and I Hwa

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

The idea behind Fubon MSCI Taiwan and I Hwa Industrial Co 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.