Correlation Between China Development and Fubon Financial
Can any of the company-specific risk be diversified away by investing in both China Development 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 China Development and Fubon Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between China Development Financial and Fubon Financial Holding, you can compare the effects of market volatilities on China Development 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 China Development with a short position of Fubon Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Development and Fubon Financial.
Diversification Opportunities for China Development and Fubon Financial
0.39 | Correlation Coefficient |
Weak diversification
The 3 months correlation between China and Fubon is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding China Development Financial 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 China Development 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 China Development Financial 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 China Development i.e., China Development and Fubon Financial go up and down completely randomly.
Pair Corralation between China Development and Fubon Financial
Assuming the 90 days trading horizon China Development Financial is expected to under-perform the Fubon Financial. In addition to that, China Development is 1.39 times more volatile than Fubon Financial Holding. It trades about -0.05 of its total potential returns per unit of risk. Fubon Financial Holding is currently generating about 0.09 per unit of volatility. If you would invest 9,190 in Fubon Financial Holding on November 5, 2024 and sell it today you would earn a total of 90.00 from holding Fubon Financial Holding or generate 0.98% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
China Development Financial vs. Fubon Financial Holding
Performance |
| Timeline |
| China Development |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Weak
| Fubon Financial Holding |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Weak
China Development and Fubon Financial Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with China Development and Fubon Financial
The main advantage of trading using opposite China Development and Fubon Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China Development 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 China Development Financial 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.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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.
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