Correlation Between Fubon MSCI and Taiwan Union

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

Diversification Opportunities for Fubon MSCI and Taiwan Union

-0.38

Correlation Coefficient

Fubon MSCI  Taiwan Union

Very good diversification

The 3 months correlation between Fubon and Taiwan is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding Fubon MSCI Taiwan and Taiwan Union Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Taiwan Union Technology 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 Taiwan Union. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Taiwan Union Technology has no effect on the direction of Fubon MSCI i.e., Fubon MSCI and Taiwan Union go up and down completely randomly.

Pair Corralation between Fubon MSCI and Taiwan Union

Assuming the 90 days trading horizon Fubon MSCI is expected to generate 6.27 times less return on investment than Taiwan Union. But when comparing it to its historical volatility, Fubon MSCI Taiwan is 2.08 times less risky than Taiwan Union. It trades about 0.14 of its potential returns per unit of risk. Taiwan Union Technology is currently generating about 0.42 of returns per unit of risk over similar time horizon. If you would invest  15,150  in Taiwan Union Technology on September 17, 2024 and sell it today you would earn a total of  3,250  from holding Taiwan Union Technology or generate 21.45% 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.  Taiwan Union Technology

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.

Taiwan Union Technology

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Taiwan Union Technology are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Taiwan Union may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Fubon MSCI and Taiwan Union

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

The idea behind Fubon MSCI Taiwan and Taiwan Union Technology 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 Transaction History module to view history of all your transactions and understand their impact on performance.