Correlation Between Fubon Financial and China Development

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

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

Diversification Opportunities for Fubon Financial and China Development

0.53

Correlation Coefficient

Fubon Financial  China Development

Very weak diversification

The 3 months correlation between Fubon and China is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Fubon Financial Holding and China Development Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Development and Fubon Financial 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 Financial Holding are associated (or correlated) with China Development. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Development has no effect on the direction of Fubon Financial i.e., Fubon Financial and China Development go up and down completely randomly.

Pair Corralation between Fubon Financial and China Development

Assuming the 90 days trading horizon Fubon Financial Holding is expected to under-perform the China Development. But the stock apears to be less risky and, when comparing its historical volatility, Fubon Financial Holding is 1.02 times less risky than China Development. The stock trades about -0.04 of its potential returns per unit of risk. The China Development Financial is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  1,610  in China Development Financial on August 30, 2024 and sell it today you would earn a total of  110.00  from holding China Development Financial or generate 6.83% return on investment over 90 days.

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

Fubon Financial Holding  vs.  China Development Financial

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.

China Development

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in China Development Financial are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, China Development may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Fubon Financial and China Development

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

The idea behind Fubon Financial Holding and China Development Financial 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.