Correlation Between Formosa Plastics and Ruentex Development
Can any of the company-specific risk be diversified away by investing in both Formosa Plastics and Ruentex Development 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 Ruentex Development 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 Ruentex Development Co, you can compare the effects of market volatilities on Formosa Plastics and Ruentex Development 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 Ruentex Development. Check out your portfolio center. Please also check ongoing floating volatility patterns of Formosa Plastics and Ruentex Development.
Diversification Opportunities for Formosa Plastics and Ruentex Development
0.79 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Formosa and Ruentex is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Formosa Plastics Corp and Ruentex Development Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ruentex Development 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 Ruentex Development. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ruentex Development has no effect on the direction of Formosa Plastics i.e., Formosa Plastics and Ruentex Development go up and down completely randomly.
Pair Corralation between Formosa Plastics and Ruentex Development
Assuming the 90 days trading horizon Formosa Plastics Corp is expected to under-perform the Ruentex Development. In addition to that, Formosa Plastics is 2.17 times more volatile than Ruentex Development Co. It trades about -0.2 of its total potential returns per unit of risk. Ruentex Development Co is currently generating about -0.07 per unit of volatility. If you would invest 4,730 in Ruentex Development Co on August 27, 2024 and sell it today you would lose (80.00) from holding Ruentex Development Co or give up 1.69% 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. Ruentex Development Co
Performance |
| Timeline |
| Formosa Plastics Corp |
| Ruentex Development |
Formosa Plastics and Ruentex Development Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Formosa Plastics and Ruentex Development
The main advantage of trading using opposite Formosa Plastics and Ruentex Development positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Formosa Plastics position performs unexpectedly, Ruentex Development 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 Ruentex Development will offset losses from the drop in Ruentex Development's long position.| Formosa Plastics vs. Cheng Shin Rubber | Formosa Plastics vs. China Steel Chemical | Formosa Plastics vs. Yulon Motor Co |
| Ruentex Development vs. Ruentex Industries | Ruentex Development vs. Pou Chen Corp | Ruentex Development vs. Fubon Financial Holding | Ruentex Development vs. Cathay Financial Holding |
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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.
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