Correlation Between Fubon MSCI and Zeng Hsing

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

Diversification Opportunities for Fubon MSCI and Zeng Hsing

-0.4

Correlation Coefficient

Fubon MSCI  Zeng Hsing

Very good diversification

The 3 months correlation between Fubon and Zeng is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Fubon MSCI Taiwan and Zeng Hsing Industrial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Zeng Hsing 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 Zeng Hsing. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Zeng Hsing Industrial has no effect on the direction of Fubon MSCI i.e., Fubon MSCI and Zeng Hsing go up and down completely randomly.

Pair Corralation between Fubon MSCI and Zeng Hsing

Assuming the 90 days trading horizon Fubon MSCI Taiwan is expected to under-perform the Zeng Hsing. In addition to that, Fubon MSCI is 1.22 times more volatile than Zeng Hsing Industrial. It trades about -0.08 of its total potential returns per unit of risk. Zeng Hsing Industrial is currently generating about 0.04 per unit of volatility. If you would invest  10,850  in Zeng Hsing Industrial on December 27, 2024 and sell it today you would earn a total of  250.00  from holding Zeng Hsing Industrial or generate 2.3% 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.  Zeng Hsing Industrial

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.

Zeng Hsing Industrial

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Zeng Hsing Industrial are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Zeng Hsing 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 Zeng Hsing

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

The idea behind Fubon MSCI Taiwan and Zeng Hsing Industrial 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.