Correlation Between Fubon Financial and Chunghwa Precision

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

Diversification Opportunities for Fubon Financial and Chunghwa Precision

0.06

Correlation Coefficient

Fubon Financial  Chunghwa Precision

Significant diversification

The 3 months correlation between Fubon and Chunghwa is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Fubon Financial Holding and Chunghwa Precision Test in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chunghwa Precision Test 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 Chunghwa Precision. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chunghwa Precision Test has no effect on the direction of Fubon Financial i.e., Fubon Financial and Chunghwa Precision go up and down completely randomly.

Pair Corralation between Fubon Financial and Chunghwa Precision

Assuming the 90 days trading horizon Fubon Financial is expected to generate 35.95 times less return on investment than Chunghwa Precision. But when comparing it to its historical volatility, Fubon Financial Holding is 3.96 times less risky than Chunghwa Precision. It trades about 0.02 of its potential returns per unit of risk. Chunghwa Precision Test is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  53,800  in Chunghwa Precision Test on October 26, 2024 and sell it today you would earn a total of  27,000  from holding Chunghwa Precision Test or generate 50.19% 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.  Chunghwa Precision Test

Fubon Financial Holding

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Fubon Financial Holding are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. 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.

Chunghwa Precision Test

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Chunghwa Precision Test are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Chunghwa Precision showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Fubon Financial and Chunghwa Precision

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

The idea behind Fubon Financial Holding and Chunghwa Precision Test 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.