Correlation Between China Metal and Fubon Financial

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

By analyzing existing cross correlation between China Metal Products and Fubon Financial Holding, you can compare the effects of market volatilities on China Metal and Fubon Financial 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 China Metal with a short position of Fubon Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Metal and Fubon Financial.

Diversification Opportunities for China Metal and Fubon Financial

0.16

Correlation Coefficient

China Metal  Fubon Financial

Average diversification

The 3 months correlation between China and Fubon is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding China Metal Products and Fubon Financial Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fubon Financial Holding and China Metal 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 China Metal Products are associated (or correlated) with Fubon Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fubon Financial Holding has no effect on the direction of China Metal i.e., China Metal and Fubon Financial go up and down completely randomly.

Pair Corralation between China Metal and Fubon Financial

Assuming the 90 days trading horizon China Metal is expected to generate 3.08 times less return on investment than Fubon Financial. In addition to that, China Metal is 1.41 times more volatile than Fubon Financial Holding. It trades about 0.02 of its total potential returns per unit of risk. Fubon Financial Holding is currently generating about 0.08 per unit of volatility. If you would invest  5,850  in Fubon Financial Holding on September 26, 2024 and sell it today you would earn a total of  3,330  from holding Fubon Financial Holding or generate 56.92% return on investment over 90 days.

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

China Metal Products  vs.  Fubon Financial Holding

China Metal Products

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China Metal Products has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in January 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Fubon Financial Holding

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Fubon Financial Holding has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Fubon Financial is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with China Metal and Fubon Financial

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

The idea behind China Metal Products and Fubon Financial Holding 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 .