Correlation Between Shin Tai and Formosa Petrochemical
Can any of the company-specific risk be diversified away by investing in both Shin Tai and Formosa Petrochemical 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 Shin Tai and Formosa Petrochemical into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Shin Tai Industry and Formosa Petrochemical Corp, you can compare the effects of market volatilities on Shin Tai and Formosa Petrochemical 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 Shin Tai with a short position of Formosa Petrochemical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shin Tai and Formosa Petrochemical.
Diversification Opportunities for Shin Tai and Formosa Petrochemical
-0.41 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Shin and Formosa is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding Shin Tai Industry and Formosa Petrochemical Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Formosa Petrochemical and Shin Tai 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 Shin Tai Industry are associated (or correlated) with Formosa Petrochemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Formosa Petrochemical has no effect on the direction of Shin Tai i.e., Shin Tai and Formosa Petrochemical go up and down completely randomly.
Pair Corralation between Shin Tai and Formosa Petrochemical
Assuming the 90 days trading horizon Shin Tai Industry is expected to generate 1.3 times more return on investment than Formosa Petrochemical. However, Shin Tai is 1.3 times more volatile than Formosa Petrochemical Corp. It trades about 0.18 of its potential returns per unit of risk. Formosa Petrochemical Corp is currently generating about -0.21 per unit of risk. If you would invest 9,100 in Shin Tai Industry on August 31, 2024 and sell it today you would earn a total of 5,550 from holding Shin Tai Industry or generate 60.99% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 99.21% |
| Values | Daily Returns |
Shin Tai Industry vs. Formosa Petrochemical Corp
Performance |
| Timeline |
| Shin Tai Industry |
| Formosa Petrochemical |
Shin Tai and Formosa Petrochemical Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Shin Tai and Formosa Petrochemical
The main advantage of trading using opposite Shin Tai and Formosa Petrochemical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Shin Tai position performs unexpectedly, Formosa Petrochemical 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 Formosa Petrochemical will offset losses from the drop in Formosa Petrochemical's long position.| Shin Tai vs. Taisun Enterprise Co | Shin Tai vs. De Licacy Industrial | Shin Tai vs. Wisher Industrial Co | Shin Tai vs. Tainan Enterprises Co |
| Formosa Petrochemical vs. Taiwan Taomee Co | Formosa Petrochemical vs. AP Memory Technology | Formosa Petrochemical vs. RichWave Technology Corp | Formosa Petrochemical vs. Fitipower Integrated Technology |
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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.
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