Correlation Between Fubon Financial and Shanghai Commercial
Can any of the company-specific risk be diversified away by investing in both Fubon Financial and Shanghai Commercial 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 Shanghai Commercial 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 Shanghai Commercial Savings, you can compare the effects of market volatilities on Fubon Financial and Shanghai Commercial 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 Shanghai Commercial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fubon Financial and Shanghai Commercial.
Diversification Opportunities for Fubon Financial and Shanghai Commercial
0.75 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Fubon and Shanghai is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Fubon Financial Holding and Shanghai Commercial Savings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shanghai Commercial 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 Shanghai Commercial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shanghai Commercial has no effect on the direction of Fubon Financial i.e., Fubon Financial and Shanghai Commercial go up and down completely randomly.
Pair Corralation between Fubon Financial and Shanghai Commercial
Assuming the 90 days trading horizon Fubon Financial Holding is expected to generate 0.26 times more return on investment than Shanghai Commercial. However, Fubon Financial Holding is 3.86 times less risky than Shanghai Commercial. It trades about 0.01 of its potential returns per unit of risk. Shanghai Commercial Savings is currently generating about -0.01 per unit of risk. If you would invest 6,030 in Fubon Financial Holding on November 2, 2024 and sell it today you would earn a total of 50.00 from holding Fubon Financial Holding or generate 0.83% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Fubon Financial Holding vs. Shanghai Commercial Savings
Performance |
| Timeline |
| Fubon Financial Holding |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Good
| Shanghai Commercial |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
Fubon Financial and Shanghai Commercial Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Fubon Financial and Shanghai Commercial
The main advantage of trading using opposite Fubon Financial and Shanghai Commercial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fubon Financial position performs unexpectedly, Shanghai Commercial 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 Shanghai Commercial will offset losses from the drop in Shanghai Commercial's long position.The idea behind Fubon Financial Holding and Shanghai Commercial Savings 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 Commodity Directory module to find actively traded commodities issued by global exchanges.
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