Correlation Between Microsoft and Fubon Financial

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

By analyzing existing cross correlation between Microsoft and Fubon Financial Holding, you can compare the effects of market volatilities on Microsoft and Fubon Financial 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 Microsoft with a short position of Fubon Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Fubon Financial.

Diversification Opportunities for Microsoft and Fubon Financial

-0.15

Correlation Coefficient

Microsoft  Fubon Financial

Good diversification

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

Pair Corralation between Microsoft and Fubon Financial

Given the investment horizon of 90 days Microsoft is expected to generate 14.3 times more return on investment than Fubon Financial. However, Microsoft is 14.3 times more volatile than Fubon Financial Holding. It trades about 0.07 of its potential returns per unit of risk. Fubon Financial Holding is currently generating about 0.28 per unit of risk. If you would invest  40,808  in Microsoft on September 4, 2024 and sell it today you would earn a total of  2,290  from holding Microsoft or generate 5.61% return on investment over 90 days.

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

Microsoft  vs.  Fubon Financial Holding

Microsoft

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable technical and fundamental indicators, Microsoft is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Fubon Financial Holding

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Fubon Financial Holding are ranked lower than 21 (%) 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.

Pair Trading with Microsoft and Fubon Financial

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

The idea behind Microsoft and Fubon Financial Holding 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.