Correlation Between Formosa Plastics and Hon Hai
Can any of the company-specific risk be diversified away by investing in both Formosa Plastics and Hon Hai 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 Hon Hai 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 Hon Hai Precision, you can compare the effects of market volatilities on Formosa Plastics and Hon Hai 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 Hon Hai. Check out your portfolio center. Please also check ongoing floating volatility patterns of Formosa Plastics and Hon Hai.
Diversification Opportunities for Formosa Plastics and Hon Hai
-0.31 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Formosa and Hon is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Formosa Plastics Corp and Hon Hai Precision in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hon Hai Precision 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 Hon Hai. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hon Hai Precision has no effect on the direction of Formosa Plastics i.e., Formosa Plastics and Hon Hai go up and down completely randomly.
Pair Corralation between Formosa Plastics and Hon Hai
Assuming the 90 days trading horizon Formosa Plastics Corp is expected to under-perform the Hon Hai. But the stock apears to be less risky and, when comparing its historical volatility, Formosa Plastics Corp is 1.53 times less risky than Hon Hai. The stock trades about -0.11 of its potential returns per unit of risk. The Hon Hai Precision is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest 9,730 in Hon Hai Precision on August 30, 2024 and sell it today you would earn a total of 9,920 from holding Hon Hai Precision or generate 101.95% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Formosa Plastics Corp vs. Hon Hai Precision
Performance |
| Timeline |
| Formosa Plastics Corp |
| Hon Hai Precision |
Formosa Plastics and Hon Hai Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Formosa Plastics and Hon Hai
The main advantage of trading using opposite Formosa Plastics and Hon Hai positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Formosa Plastics position performs unexpectedly, Hon Hai 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 Hon Hai will offset losses from the drop in Hon Hai'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 |
| Hon Hai vs. United Microelectronics | Hon Hai vs. MediaTek | Hon Hai vs. Chunghwa Telecom Co | Hon Hai vs. Delta Electronics |
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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.
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