Correlation Between Cathay DJIA and Fubon MSCI

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

Diversification Opportunities for Cathay DJIA and Fubon MSCI

0.27

Correlation Coefficient

Cathay DJIA  Fubon MSCI

Modest diversification

The 3 months correlation between Cathay and Fubon is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Cathay DJIA Inv 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 DJIA 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 DJIA Inv 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 DJIA i.e., Cathay DJIA and Fubon MSCI go up and down completely randomly.

Pair Corralation between Cathay DJIA and Fubon MSCI

Assuming the 90 days trading horizon Cathay DJIA Inv is expected to generate 0.74 times more return on investment than Fubon MSCI. However, Cathay DJIA Inv is 1.35 times less risky than Fubon MSCI. It trades about 0.04 of its potential returns per unit of risk. Fubon MSCI Taiwan is currently generating about 0.0 per unit of risk. If you would invest  651.00  in Cathay DJIA Inv on October 21, 2024 and sell it today you would earn a total of  13.00  from holding Cathay DJIA Inv or generate 2.0% return on investment over 90 days.

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

Cathay DJIA Inv  vs.  Fubon MSCI Taiwan

Cathay DJIA Inv

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Cathay DJIA Inv are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Cathay DJIA is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Fubon MSCI Taiwan

Risk-Adjusted Performance

0 of 100

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.

Pair Trading with Cathay DJIA and Fubon MSCI

The main advantage of trading using opposite Cathay DJIA and Fubon MSCI positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cathay DJIA 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 DJIA Inv 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.