Correlation Between Fubon MSCI and Choice Development

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

Diversification Opportunities for Fubon MSCI and Choice Development

0.02

Correlation Coefficient

Fubon MSCI  Choice Development

Significant diversification

The 3 months correlation between Fubon and Choice is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Fubon MSCI Taiwan and Choice Development in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Choice Development 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 Choice Development. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Choice Development has no effect on the direction of Fubon MSCI i.e., Fubon MSCI and Choice Development go up and down completely randomly.

Pair Corralation between Fubon MSCI and Choice Development

Assuming the 90 days trading horizon Fubon MSCI Taiwan is expected to generate 0.89 times more return on investment than Choice Development. However, Fubon MSCI Taiwan is 1.12 times less risky than Choice Development. It trades about 0.06 of its potential returns per unit of risk. Choice Development is currently generating about 0.01 per unit of risk. If you would invest  11,365  in Fubon MSCI Taiwan on December 4, 2024 and sell it today you would earn a total of  2,650  from holding Fubon MSCI Taiwan or generate 23.32% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Fubon MSCI Taiwan  vs.  Choice Development

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.

Choice Development

Risk-Adjusted Performance

Very Weak

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

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

The idea behind Fubon MSCI Taiwan and Choice Development 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.