Correlation Between Fubon TWSE and Fuh Hwa

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

Diversification Opportunities for Fubon TWSE and Fuh Hwa

-0.52

Correlation Coefficient

Fubon TWSE  Fuh Hwa

Excellent diversification

The 3 months correlation between Fubon and Fuh is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding Fubon TWSE Corporate and Fuh Hwa Emerging in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fuh Hwa Emerging 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 Fuh Hwa. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fuh Hwa Emerging has no effect on the direction of Fubon TWSE i.e., Fubon TWSE and Fuh Hwa go up and down completely randomly.

Pair Corralation between Fubon TWSE and Fuh Hwa

Assuming the 90 days trading horizon Fubon TWSE Corporate is expected to generate 2.42 times more return on investment than Fuh Hwa. However, Fubon TWSE is 2.42 times more volatile than Fuh Hwa Emerging. It trades about 0.08 of its potential returns per unit of risk. Fuh Hwa Emerging is currently generating about 0.02 per unit of risk. If you would invest  2,907  in Fubon TWSE Corporate on December 5, 2024 and sell it today you would earn a total of  1,450  from holding Fubon TWSE Corporate or generate 49.88% return on investment over 90 days.

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

Fubon TWSE Corporate  vs.  Fuh Hwa Emerging

Fubon TWSE Corporate

Risk-Adjusted Performance

Very Weak

Over the last 90 days Fubon TWSE Corporate has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Fubon TWSE is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Fuh Hwa Emerging

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Fubon TWSE and Fuh Hwa

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

The idea behind Fubon TWSE Corporate and Fuh Hwa Emerging 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.