Correlation Between Fubon TWSE and Fubon Hang

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

By analyzing existing cross correlation between Fubon TWSE Corporate and Fubon Hang Seng, you can compare the effects of market volatilities on Fubon TWSE and Fubon Hang 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 TWSE with a short position of Fubon Hang. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fubon TWSE and Fubon Hang.

Diversification Opportunities for Fubon TWSE and Fubon Hang

0.51

Correlation Coefficient

Fubon TWSE  Fubon Hang

Very weak diversification

The 3 months correlation between Fubon and Fubon is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Fubon TWSE Corporate and Fubon Hang Seng in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fubon Hang Seng and Fubon TWSE 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 TWSE Corporate are associated (or correlated) with Fubon Hang. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fubon Hang Seng has no effect on the direction of Fubon TWSE i.e., Fubon TWSE and Fubon Hang go up and down completely randomly.

Pair Corralation between Fubon TWSE and Fubon Hang

Assuming the 90 days trading horizon Fubon TWSE is expected to generate 4.24 times less return on investment than Fubon Hang. But when comparing it to its historical volatility, Fubon TWSE Corporate is 4.64 times less risky than Fubon Hang. It trades about 0.12 of its potential returns per unit of risk. Fubon Hang Seng is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  624.00  in Fubon Hang Seng on September 18, 2024 and sell it today you would earn a total of  183.00  from holding Fubon Hang Seng or generate 29.33% return on investment over 90 days.

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

Fubon TWSE Corporate  vs.  Fubon Hang Seng

Fubon TWSE Corporate

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Fubon TWSE Corporate are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Fubon TWSE may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Fubon Hang Seng

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Fubon Hang Seng are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Fubon Hang sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Fubon TWSE and Fubon Hang

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

The idea behind Fubon TWSE Corporate and Fubon Hang Seng 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.