Correlation Between Fubon TWSE and Capital BofA

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

Diversification Opportunities for Fubon TWSE and Capital BofA

-0.37

Correlation Coefficient

Fubon TWSE  Capital BofA

Very good diversification

The 3 months correlation between Fubon and Capital is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Fubon TWSE Corporate and Capital BofA Merrill in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capital BofA Merrill 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 Capital BofA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Capital BofA Merrill has no effect on the direction of Fubon TWSE i.e., Fubon TWSE and Capital BofA go up and down completely randomly.

Pair Corralation between Fubon TWSE and Capital BofA

Assuming the 90 days trading horizon Fubon TWSE Corporate is expected to generate 1.62 times more return on investment than Capital BofA. However, Fubon TWSE is 1.62 times more volatile than Capital BofA Merrill. It trades about 0.13 of its potential returns per unit of risk. Capital BofA Merrill is currently generating about -0.45 per unit of risk. If you would invest  4,498  in Fubon TWSE Corporate on October 9, 2024 and sell it today you would earn a total of  114.00  from holding Fubon TWSE Corporate or generate 2.53% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.24%
Values	Daily Returns

Fubon TWSE Corporate  vs.  Capital BofA Merrill

Fubon TWSE Corporate

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Fubon TWSE Corporate are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. 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.

Capital BofA Merrill

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Fubon TWSE and Capital BofA

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

The idea behind Fubon TWSE Corporate and Capital BofA Merrill 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 Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .