Correlation Between Formosa Plastics and Aero Win
Can any of the company-specific risk be diversified away by investing in both Formosa Plastics and Aero Win 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 Aero Win 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 Aero Win Technology, you can compare the effects of market volatilities on Formosa Plastics and Aero Win 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 Aero Win. Check out your portfolio center. Please also check ongoing floating volatility patterns of Formosa Plastics and Aero Win.
Diversification Opportunities for Formosa Plastics and Aero Win
0.02 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Formosa and Aero is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Formosa Plastics Corp and Aero Win Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aero Win Technology 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 Aero Win. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aero Win Technology has no effect on the direction of Formosa Plastics i.e., Formosa Plastics and Aero Win go up and down completely randomly.
Pair Corralation between Formosa Plastics and Aero Win
Assuming the 90 days trading horizon Formosa Plastics Corp is expected to under-perform the Aero Win. But the stock apears to be less risky and, when comparing its historical volatility, Formosa Plastics Corp is 1.82 times less risky than Aero Win. The stock trades about -0.16 of its potential returns per unit of risk. The Aero Win Technology is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest 6,160 in Aero Win Technology on August 31, 2024 and sell it today you would lose (2,340) from holding Aero Win Technology or give up 37.99% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Formosa Plastics Corp vs. Aero Win Technology
Performance |
| Timeline |
| Formosa Plastics Corp |
| Aero Win Technology |
Formosa Plastics and Aero Win Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Formosa Plastics and Aero Win
The main advantage of trading using opposite Formosa Plastics and Aero Win positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Formosa Plastics position performs unexpectedly, Aero Win 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 Aero Win will offset losses from the drop in Aero Win'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 |
| Aero Win vs. CSBC Corp Taiwan | Aero Win vs. Tong Tai Machine Tool | Aero Win vs. Super Dragon Technology | Aero Win vs. Victory New Materials |
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 Transaction History module to view history of all your transactions and understand their impact on performance.
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