Correlation Between Formosa Plastics and Taiwan Fertilizer
Can any of the company-specific risk be diversified away by investing in both Formosa Plastics and Taiwan Fertilizer 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 Formosa Plastics and Taiwan Fertilizer into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Formosa Plastics Corp and Taiwan Fertilizer Co, you can compare the effects of market volatilities on Formosa Plastics and Taiwan Fertilizer 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 Formosa Plastics with a short position of Taiwan Fertilizer. Check out your portfolio center. Please also check ongoing floating volatility patterns of Formosa Plastics and Taiwan Fertilizer.
Diversification Opportunities for Formosa Plastics and Taiwan Fertilizer
0.6 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Formosa and Taiwan is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Formosa Plastics Corp and Taiwan Fertilizer Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Taiwan Fertilizer and Formosa Plastics 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 Formosa Plastics Corp are associated (or correlated) with Taiwan Fertilizer. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Taiwan Fertilizer has no effect on the direction of Formosa Plastics i.e., Formosa Plastics and Taiwan Fertilizer go up and down completely randomly.
Pair Corralation between Formosa Plastics and Taiwan Fertilizer
Assuming the 90 days trading horizon Formosa Plastics Corp is expected to under-perform the Taiwan Fertilizer. In addition to that, Formosa Plastics is 1.2 times more volatile than Taiwan Fertilizer Co. It trades about -0.11 of its total potential returns per unit of risk. Taiwan Fertilizer Co is currently generating about 0.01 per unit of volatility. If you would invest 5,500 in Taiwan Fertilizer Co on August 30, 2024 and sell it today you would earn a total of 150.00 from holding Taiwan Fertilizer Co or generate 2.73% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Formosa Plastics Corp vs. Taiwan Fertilizer Co
Performance |
| Timeline |
| Formosa Plastics Corp |
| Taiwan Fertilizer |
Formosa Plastics and Taiwan Fertilizer Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Formosa Plastics and Taiwan Fertilizer
The main advantage of trading using opposite Formosa Plastics and Taiwan Fertilizer positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Formosa Plastics position performs unexpectedly, Taiwan Fertilizer 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 Taiwan Fertilizer will offset losses from the drop in Taiwan Fertilizer's long position.| Formosa Plastics vs. Nan Ya Plastics | Formosa Plastics vs. Formosa Chemicals Fibre | Formosa Plastics vs. China Steel Corp | Formosa Plastics vs. Formosa Petrochemical Corp |
| Taiwan Fertilizer vs. Taiwan Cement Corp | Taiwan Fertilizer vs. Far Eastern New | Taiwan Fertilizer vs. Asia Cement Corp | Taiwan Fertilizer vs. Formosa Plastics Corp |
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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.
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