Correlation Between Fubon MSCI and China Metal

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

Diversification Opportunities for Fubon MSCI and China Metal

-0.33

Correlation Coefficient

Fubon MSCI  China Metal

Very good diversification

The 3 months correlation between Fubon and China is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Fubon MSCI Taiwan and China Metal Products in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Metal Products 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 China Metal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Metal Products has no effect on the direction of Fubon MSCI i.e., Fubon MSCI and China Metal go up and down completely randomly.

Pair Corralation between Fubon MSCI and China Metal

Assuming the 90 days trading horizon Fubon MSCI Taiwan is expected to generate 0.73 times more return on investment than China Metal. However, Fubon MSCI Taiwan is 1.38 times less risky than China Metal. It trades about 0.13 of its potential returns per unit of risk. China Metal Products is currently generating about -0.17 per unit of risk. If you would invest  13,090  in Fubon MSCI Taiwan on September 17, 2024 and sell it today you would earn a total of  1,275  from holding Fubon MSCI Taiwan or generate 9.74% 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.  China Metal Products

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 abnormal basic indicators, Fubon MSCI may actually be approaching a critical reversion point that can send shares even higher in January 2025.

China Metal Products

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China Metal Products has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in January 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Pair Trading with Fubon MSCI and China Metal

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

The idea behind Fubon MSCI Taiwan and China Metal Products 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.