Correlation Between Fubon Financial and TMP Steel

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

Diversification Opportunities for Fubon Financial and TMP Steel

-0.48

Correlation Coefficient

Fubon Financial  TMP Steel

Very good diversification

The 3 months correlation between Fubon and TMP is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding Fubon Financial Holding and TMP Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TMP Steel 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 TMP Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TMP Steel has no effect on the direction of Fubon Financial i.e., Fubon Financial and TMP Steel go up and down completely randomly.

Pair Corralation between Fubon Financial and TMP Steel

Assuming the 90 days trading horizon Fubon Financial Holding is expected to generate 0.1 times more return on investment than TMP Steel. However, Fubon Financial Holding is 10.06 times less risky than TMP Steel. It trades about 0.13 of its potential returns per unit of risk. TMP Steel is currently generating about -0.15 per unit of risk. If you would invest  6,000  in Fubon Financial Holding on October 9, 2024 and sell it today you would earn a total of  50.00  from holding Fubon Financial Holding or generate 0.83% return on investment over 90 days.

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

Fubon Financial Holding  vs.  TMP Steel

Fubon Financial Holding

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Fubon Financial Holding are ranked lower than 10 (%) 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.

TMP Steel

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days TMP Steel has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Pair Trading with Fubon Financial and TMP Steel

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

The idea behind Fubon Financial Holding and TMP Steel 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.