Correlation Between Fubon Financial and Louisa Professional

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

Diversification Opportunities for Fubon Financial and Louisa Professional

0.87

Correlation Coefficient

Fubon Financial  Louisa Professional

Very poor diversification

The 3 months correlation between Fubon and Louisa is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Fubon Financial Holding and Louisa Professional Coffee in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Louisa Professional 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 Louisa Professional. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Louisa Professional has no effect on the direction of Fubon Financial i.e., Fubon Financial and Louisa Professional go up and down completely randomly.

Pair Corralation between Fubon Financial and Louisa Professional

Assuming the 90 days trading horizon Fubon Financial is expected to generate 8.55 times less return on investment than Louisa Professional. But when comparing it to its historical volatility, Fubon Financial Holding is 15.25 times less risky than Louisa Professional. It trades about 0.45 of its potential returns per unit of risk. Louisa Professional Coffee is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest  8,746  in Louisa Professional Coffee on December 30, 2024 and sell it today you would earn a total of  2,554  from holding Louisa Professional Coffee or generate 29.2% return on investment over 90 days.

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

Fubon Financial Holding  vs.  Louisa Professional Coffee

Fubon Financial Holding

Risk-Adjusted Performance

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Fubon Financial Holding are ranked lower than 35 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Fubon Financial is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Louisa Professional

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Louisa Professional Coffee are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Louisa Professional showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Fubon Financial and Louisa Professional

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

The idea behind Fubon Financial Holding and Louisa Professional Coffee 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.

Check out your portfolio center.

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 .