Correlation Between Fubon MSCI and Great China

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

Diversification Opportunities for Fubon MSCI and Great China

-0.33

Correlation Coefficient

Fubon MSCI  Great China

Very good diversification

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

Pair Corralation between Fubon MSCI and Great China

Assuming the 90 days trading horizon Fubon MSCI Taiwan is expected to generate 3.18 times more return on investment than Great China. However, Fubon MSCI is 3.18 times more volatile than Great China Metal. It trades about 0.11 of its potential returns per unit of risk. Great China Metal is currently generating about -0.03 per unit of risk. If you would invest  9,750  in Fubon MSCI Taiwan on October 6, 2024 and sell it today you would earn a total of  4,640  from holding Fubon MSCI Taiwan or generate 47.59% 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.  Great China Metal

Fubon MSCI Taiwan

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Fubon MSCI Taiwan are ranked lower than 4 (%) 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.

Great China Metal

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Great China Metal has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Great China 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 Great China

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

The idea behind Fubon MSCI Taiwan and Great China Metal 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.