Correlation Between Fubon MSCI and China Metal

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

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

Diversification Opportunities for Fubon MSCI and China Metal

0.14

Correlation Coefficient

Fubon MSCI  China Metal

Average diversification

The 3 months correlation between Fubon and China is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding Fubon MSCI Taiwan and China Metal Products in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Metal Products and Fubon MSCI 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 MSCI Taiwan are associated (or correlated) with China Metal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Metal Products has no effect on the direction of Fubon MSCI i.e., Fubon MSCI and China Metal go up and down completely randomly.

Pair Corralation between Fubon MSCI and China Metal

Assuming the 90 days trading horizon Fubon MSCI is expected to generate 13.83 times less return on investment than China Metal. But when comparing it to its historical volatility, Fubon MSCI Taiwan is 1.29 times less risky than China Metal. It trades about 0.05 of its potential returns per unit of risk. China Metal Products is currently generating about 0.53 of returns per unit of risk over similar time horizon. If you would invest  3,755  in China Metal Products on February 1, 2024 and sell it today you would earn a total of  995.00  from holding China Metal Products or generate 26.5% return on investment over 90 days.

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

Fubon MSCI Taiwan  vs.  China Metal Products

Fubon MSCI Taiwan

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Fubon MSCI Taiwan are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Fubon MSCI showed solid returns over the last few months and may actually be approaching a breakup point.

China Metal Products

Risk-Adjusted Performance

15 of 100

Good

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

Pair Trading with Fubon MSCI and China Metal

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

The idea behind Fubon MSCI Taiwan and China Metal Products 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 Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.