Correlation Between Formosa Plastics and Aerospace Industrial
Can any of the company-specific risk be diversified away by investing in both Formosa Plastics and Aerospace Industrial 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 Aerospace Industrial 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 Aerospace Industrial Development, you can compare the effects of market volatilities on Formosa Plastics and Aerospace Industrial 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 Aerospace Industrial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Formosa Plastics and Aerospace Industrial.
Diversification Opportunities for Formosa Plastics and Aerospace Industrial
0.76 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Formosa and Aerospace is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Formosa Plastics Corp and Aerospace Industrial Developme in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aerospace Industrial 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 Aerospace Industrial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aerospace Industrial has no effect on the direction of Formosa Plastics i.e., Formosa Plastics and Aerospace Industrial go up and down completely randomly.
Pair Corralation between Formosa Plastics and Aerospace Industrial
Assuming the 90 days trading horizon Formosa Plastics Corp is expected to under-perform the Aerospace Industrial. In addition to that, Formosa Plastics is 1.64 times more volatile than Aerospace Industrial Development. It trades about -0.27 of its total potential returns per unit of risk. Aerospace Industrial Development is currently generating about -0.21 per unit of volatility. If you would invest 4,820 in Aerospace Industrial Development on August 31, 2024 and sell it today you would lose (490.00) from holding Aerospace Industrial Development or give up 10.17% 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. Aerospace Industrial Developme
Performance |
| Timeline |
| Formosa Plastics Corp |
| Aerospace Industrial |
Formosa Plastics and Aerospace Industrial Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Formosa Plastics and Aerospace Industrial
The main advantage of trading using opposite Formosa Plastics and Aerospace Industrial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Formosa Plastics position performs unexpectedly, Aerospace Industrial 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 Aerospace Industrial will offset losses from the drop in Aerospace Industrial's long position.| Formosa Plastics vs. Basso Industry Corp | Formosa Plastics vs. Chung Hsin Electric Machinery | Formosa Plastics vs. TYC Brother Industrial | Formosa Plastics vs. TECO Electric Machinery |
| Aerospace Industrial vs. CSBC Corp Taiwan | Aerospace Industrial vs. Eva Airways Corp | Aerospace Industrial vs. Taiwan High Speed | Aerospace Industrial vs. China Airlines |
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 Commodity Directory module to find actively traded commodities issued by global exchanges.
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