Correlation Between Fubon Financial and Wah Lee
Can any of the company-specific risk be diversified away by investing in both Fubon Financial and Wah Lee 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 Wah Lee 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 Wah Lee Industrial, you can compare the effects of market volatilities on Fubon Financial and Wah Lee 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 Wah Lee. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fubon Financial and Wah Lee.
Diversification Opportunities for Fubon Financial and Wah Lee
-0.67 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Fubon and Wah is -0.67. Overlapping area represents the amount of risk that can be diversified away by holding Fubon Financial Holding and Wah Lee Industrial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wah Lee Industrial 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 Wah Lee. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wah Lee Industrial has no effect on the direction of Fubon Financial i.e., Fubon Financial and Wah Lee go up and down completely randomly.
Pair Corralation between Fubon Financial and Wah Lee
Assuming the 90 days trading horizon Fubon Financial is expected to generate 34.23 times less return on investment than Wah Lee. But when comparing it to its historical volatility, Fubon Financial Holding is 6.0 times less risky than Wah Lee. It trades about 0.01 of its potential returns per unit of risk. Wah Lee Industrial is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest 8,710 in Wah Lee Industrial on November 2, 2024 and sell it today you would earn a total of 2,890 from holding Wah Lee Industrial or generate 33.18% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Fubon Financial Holding vs. Wah Lee Industrial
Performance |
| Timeline |
| Fubon Financial Holding |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Good
| Wah Lee Industrial |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
Fubon Financial and Wah Lee Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Fubon Financial and Wah Lee
The main advantage of trading using opposite Fubon Financial and Wah Lee positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fubon Financial position performs unexpectedly, Wah Lee 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 Wah Lee will offset losses from the drop in Wah Lee's long position.The idea behind Fubon Financial Holding and Wah Lee Industrial 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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