Correlation Between Formosa Plastics and Yulon
Can any of the company-specific risk be diversified away by investing in both Formosa Plastics and Yulon 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 Yulon 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 Yulon Motor Co, you can compare the effects of market volatilities on Formosa Plastics and Yulon 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 Yulon. Check out your portfolio center. Please also check ongoing floating volatility patterns of Formosa Plastics and Yulon.
Diversification Opportunities for Formosa Plastics and Yulon
0.77 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Formosa and Yulon is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Formosa Plastics Corp and Yulon Motor Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Yulon Motor 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 Yulon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Yulon Motor has no effect on the direction of Formosa Plastics i.e., Formosa Plastics and Yulon go up and down completely randomly.
Pair Corralation between Formosa Plastics and Yulon
Assuming the 90 days trading horizon Formosa Plastics Corp is expected to under-perform the Yulon. In addition to that, Formosa Plastics is 1.09 times more volatile than Yulon Motor Co. It trades about -0.17 of its total potential returns per unit of risk. Yulon Motor Co is currently generating about -0.1 per unit of volatility. If you would invest 5,900 in Yulon Motor Co on October 26, 2024 and sell it today you would lose (900.00) from holding Yulon Motor Co or give up 15.25% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Formosa Plastics Corp vs. Yulon Motor Co
Performance |
| Timeline |
| Formosa Plastics Corp |
| Yulon Motor |
Formosa Plastics and Yulon Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Formosa Plastics and Yulon
The main advantage of trading using opposite Formosa Plastics and Yulon positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Formosa Plastics position performs unexpectedly, Yulon 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 Yulon will offset losses from the drop in Yulon'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 |
| Yulon vs. China Motor Corp | Yulon vs. China Steel Corp | Yulon vs. Nan Ya Plastics | Yulon vs. Chang Hwa Commercial |
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 Money Managers module to screen money managers from public funds and ETFs managed around the world.
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