Correlation Between Fubon 1 and Cathay Koreataiwan

Can any of the company-specific risk be diversified away by investing in both Fubon 1 and Cathay Koreataiwan 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 1 and Cathay Koreataiwan into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Fubon 1 3 Years and Cathay Koreataiwan IT, you can compare the effects of market volatilities on Fubon 1 and Cathay Koreataiwan 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 1 with a short position of Cathay Koreataiwan. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fubon 1 and Cathay Koreataiwan.

Diversification Opportunities for Fubon 1 and Cathay Koreataiwan

-0.3

Correlation Coefficient

Fubon 1  Cathay Koreataiwan

Very good diversification

The 3 months correlation between Fubon and Cathay is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding Fubon 1 3 Years and Cathay Koreataiwan IT in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cathay Koreataiwan and Fubon 1 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 1 3 Years are associated (or correlated) with Cathay Koreataiwan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cathay Koreataiwan has no effect on the direction of Fubon 1 i.e., Fubon 1 and Cathay Koreataiwan go up and down completely randomly.

Pair Corralation between Fubon 1 and Cathay Koreataiwan

Assuming the 90 days trading horizon Fubon 1 is expected to generate 1.58 times less return on investment than Cathay Koreataiwan. But when comparing it to its historical volatility, Fubon 1 3 Years is 2.87 times less risky than Cathay Koreataiwan. It trades about 0.05 of its potential returns per unit of risk. Cathay Koreataiwan IT is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  3,230  in Cathay Koreataiwan IT on September 12, 2024 and sell it today you would earn a total of  43.00  from holding Cathay Koreataiwan IT or generate 1.33% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.41%
Values	Daily Returns

Fubon 1 3 Years  vs.  Cathay Koreataiwan IT

Fubon 1 3

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Fubon 1 3 Years are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Fubon 1 is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Cathay Koreataiwan

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Cathay Koreataiwan IT are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Cathay Koreataiwan is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Fubon 1 and Cathay Koreataiwan

The main advantage of trading using opposite Fubon 1 and Cathay Koreataiwan positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fubon 1 position performs unexpectedly, Cathay Koreataiwan 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 Cathay Koreataiwan will offset losses from the drop in Cathay Koreataiwan's long position.

The idea behind Fubon 1 3 Years and Cathay Koreataiwan IT 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.