Correlation Between Cathay TAIEX and Fubon MSCI

Can any of the company-specific risk be diversified away by investing in both Cathay TAIEX and Fubon MSCI 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 Cathay TAIEX and Fubon MSCI into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Cathay TAIEX Daily and Fubon MSCI Taiwan, you can compare the effects of market volatilities on Cathay TAIEX and Fubon MSCI 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 Cathay TAIEX with a short position of Fubon MSCI. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cathay TAIEX and Fubon MSCI.

Diversification Opportunities for Cathay TAIEX and Fubon MSCI

-0.56

Correlation Coefficient

Cathay TAIEX  Fubon MSCI

Excellent diversification

The 3 months correlation between Cathay and Fubon is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding Cathay TAIEX Daily and Fubon MSCI Taiwan in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fubon MSCI Taiwan and Cathay TAIEX 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 Cathay TAIEX Daily are associated (or correlated) with Fubon MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fubon MSCI Taiwan has no effect on the direction of Cathay TAIEX i.e., Cathay TAIEX and Fubon MSCI go up and down completely randomly.

Pair Corralation between Cathay TAIEX and Fubon MSCI

Assuming the 90 days trading horizon Cathay TAIEX Daily is expected to under-perform the Fubon MSCI. But the etf apears to be less risky and, when comparing its historical volatility, Cathay TAIEX Daily is 1.17 times less risky than Fubon MSCI. The etf trades about -0.03 of its potential returns per unit of risk. The Fubon MSCI Taiwan is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  14,195  in Fubon MSCI Taiwan on December 2, 2024 and sell it today you would earn a total of  130.00  from holding Fubon MSCI Taiwan or generate 0.92% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Cathay TAIEX Daily  vs.  Fubon MSCI Taiwan

Cathay TAIEX Daily

Risk-Adjusted Performance

Very Weak

Over the last 90 days Cathay TAIEX Daily has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Cathay TAIEX is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Fubon MSCI Taiwan

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Fubon MSCI Taiwan are ranked lower than 2 (%) 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 current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Cathay TAIEX and Fubon MSCI

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

The idea behind Cathay TAIEX Daily and Fubon MSCI Taiwan 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 Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.