Correlation Between Fubon MSCI and Far Eastern

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

Diversification Opportunities for Fubon MSCI and Far Eastern

0.78

Correlation Coefficient

Fubon MSCI  Far Eastern

Poor diversification

The 3 months correlation between Fubon and Far is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Fubon MSCI Taiwan and Far Eastern New in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Far Eastern New 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 Far Eastern. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Far Eastern New has no effect on the direction of Fubon MSCI i.e., Fubon MSCI and Far Eastern go up and down completely randomly.

Pair Corralation between Fubon MSCI and Far Eastern

Assuming the 90 days trading horizon Fubon MSCI Taiwan is expected to generate 0.87 times more return on investment than Far Eastern. However, Fubon MSCI Taiwan is 1.15 times less risky than Far Eastern. It trades about 0.21 of its potential returns per unit of risk. Far Eastern New is currently generating about 0.09 per unit of risk. If you would invest  10,775  in Fubon MSCI Taiwan on February 23, 2024 and sell it today you would earn a total of  1,770  from holding Fubon MSCI Taiwan or generate 16.43% return on investment over 90 days.

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

Fubon MSCI Taiwan  vs.  Far Eastern New

Fubon MSCI Taiwan

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Fubon MSCI Taiwan are ranked lower than 16 (%) 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.

Far Eastern New

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Far Eastern New are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Far Eastern may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with Fubon MSCI and Far Eastern

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

The idea behind Fubon MSCI Taiwan and Far Eastern New 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.