Correlation Between USI Corp and Formosa Petrochemical
Can any of the company-specific risk be diversified away by investing in both USI Corp and Formosa Petrochemical 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 USI Corp and Formosa Petrochemical into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between USI Corp and Formosa Petrochemical Corp, you can compare the effects of market volatilities on USI Corp and Formosa Petrochemical 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 USI Corp with a short position of Formosa Petrochemical. Check out your portfolio center. Please also check ongoing floating volatility patterns of USI Corp and Formosa Petrochemical.
Diversification Opportunities for USI Corp and Formosa Petrochemical
0.91 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between USI and Formosa is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding USI Corp and Formosa Petrochemical Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Formosa Petrochemical and USI Corp 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 USI Corp are associated (or correlated) with Formosa Petrochemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Formosa Petrochemical has no effect on the direction of USI Corp i.e., USI Corp and Formosa Petrochemical go up and down completely randomly.
Pair Corralation between USI Corp and Formosa Petrochemical
Assuming the 90 days trading horizon USI Corp is expected to generate 1.23 times more return on investment than Formosa Petrochemical. However, USI Corp is 1.23 times more volatile than Formosa Petrochemical Corp. It trades about -0.06 of its potential returns per unit of risk. Formosa Petrochemical Corp is currently generating about -0.11 per unit of risk. If you would invest 2,109 in USI Corp on September 12, 2024 and sell it today you would lose (884.00) from holding USI Corp or give up 41.92% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 99.79% |
| Values | Daily Returns |
USI Corp vs. Formosa Petrochemical Corp
Performance |
| Timeline |
| USI Corp |
| Formosa Petrochemical |
USI Corp and Formosa Petrochemical Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with USI Corp and Formosa Petrochemical
The main advantage of trading using opposite USI Corp and Formosa Petrochemical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if USI Corp position performs unexpectedly, Formosa Petrochemical 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 Formosa Petrochemical will offset losses from the drop in Formosa Petrochemical's long position.| USI Corp vs. Tainan Spinning Co | USI Corp vs. Lealea Enterprise Co | USI Corp vs. China Petrochemical Development | USI Corp vs. Ruentex Development Co |
| Formosa Petrochemical vs. President Chain Store | Formosa Petrochemical vs. Huaku Development Co | Formosa Petrochemical vs. Formosa International Hotels | Formosa Petrochemical vs. Taiwan Fu Hsing |
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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.
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