Correlation Between Fubon MSCI and Lungyen Life

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

Diversification Opportunities for Fubon MSCI and Lungyen Life

0.1

Correlation Coefficient

Fubon MSCI  Lungyen Life

Average diversification

The 3 months correlation between Fubon and Lungyen is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding Fubon MSCI Taiwan and Lungyen Life Service in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lungyen Life Service 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 Lungyen Life. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lungyen Life Service has no effect on the direction of Fubon MSCI i.e., Fubon MSCI and Lungyen Life go up and down completely randomly.

Pair Corralation between Fubon MSCI and Lungyen Life

Assuming the 90 days trading horizon Fubon MSCI Taiwan is expected to generate 0.78 times more return on investment than Lungyen Life. However, Fubon MSCI Taiwan is 1.29 times less risky than Lungyen Life. It trades about 0.11 of its potential returns per unit of risk. Lungyen Life Service is currently generating about 0.08 per unit of risk. If you would invest  9,840  in Fubon MSCI Taiwan on October 5, 2024 and sell it today you would earn a total of  4,355  from holding Fubon MSCI Taiwan or generate 44.26% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	99.59%
Values	Daily Returns

Fubon MSCI Taiwan  vs.  Lungyen Life Service

Fubon MSCI Taiwan

Risk-Adjusted Performance

3 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Fubon MSCI Taiwan are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Fubon MSCI is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Lungyen Life Service

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Lungyen Life Service are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Lungyen Life showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Fubon MSCI and Lungyen Life

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

The idea behind Fubon MSCI Taiwan and Lungyen Life Service 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.