Correlation Between Fubon Financial and Cheng Fwa

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

Diversification Opportunities for Fubon Financial and Cheng Fwa

0.15

Correlation Coefficient

Fubon Financial  Cheng Fwa

Average diversification

The 3 months correlation between Fubon and Cheng is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding Fubon Financial Holding and Cheng Fwa Industrial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cheng Fwa Industrial 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 Cheng Fwa. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cheng Fwa Industrial has no effect on the direction of Fubon Financial i.e., Fubon Financial and Cheng Fwa go up and down completely randomly.

Pair Corralation between Fubon Financial and Cheng Fwa

Assuming the 90 days trading horizon Fubon Financial is expected to generate 2.65 times less return on investment than Cheng Fwa. But when comparing it to its historical volatility, Fubon Financial Holding is 2.95 times less risky than Cheng Fwa. It trades about 0.11 of its potential returns per unit of risk. Cheng Fwa Industrial is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  2,710  in Cheng Fwa Industrial on September 16, 2024 and sell it today you would earn a total of  520.00  from holding Cheng Fwa Industrial or generate 19.19% return on investment over 90 days.

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

Fubon Financial Holding  vs.  Cheng Fwa Industrial

Fubon Financial Holding

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Fubon Financial Holding are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Fubon Financial may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Cheng Fwa Industrial

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Cheng Fwa Industrial are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain basic indicators, Cheng Fwa showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Fubon Financial and Cheng Fwa

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

The idea behind Fubon Financial Holding and Cheng Fwa Industrial 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 Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.