Correlation Between China Petrochemical and Formosa Chemicals
Can any of the company-specific risk be diversified away by investing in both China Petrochemical and Formosa Chemicals 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 China Petrochemical and Formosa Chemicals into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between China Petrochemical Development and Formosa Chemicals Fibre, you can compare the effects of market volatilities on China Petrochemical and Formosa Chemicals 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 China Petrochemical with a short position of Formosa Chemicals. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Petrochemical and Formosa Chemicals.
Diversification Opportunities for China Petrochemical and Formosa Chemicals
0.71 | Correlation Coefficient |
Poor diversification
The 3 months correlation between China and Formosa is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding China Petrochemical Developmen and Formosa Chemicals Fibre in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Formosa Chemicals Fibre and China Petrochemical 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 China Petrochemical Development are associated (or correlated) with Formosa Chemicals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Formosa Chemicals Fibre has no effect on the direction of China Petrochemical i.e., China Petrochemical and Formosa Chemicals go up and down completely randomly.
Pair Corralation between China Petrochemical and Formosa Chemicals
Assuming the 90 days trading horizon China Petrochemical Development is expected to generate 0.66 times more return on investment than Formosa Chemicals. However, China Petrochemical Development is 1.52 times less risky than Formosa Chemicals. It trades about 0.04 of its potential returns per unit of risk. Formosa Chemicals Fibre is currently generating about -0.32 per unit of risk. If you would invest 790.00 in China Petrochemical Development on September 14, 2024 and sell it today you would earn a total of 7.00 from holding China Petrochemical Development or generate 0.89% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
China Petrochemical Developmen vs. Formosa Chemicals Fibre
Performance |
| Timeline |
| China Petrochemical |
| Formosa Chemicals Fibre |
China Petrochemical and Formosa Chemicals Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with China Petrochemical and Formosa Chemicals
The main advantage of trading using opposite China Petrochemical and Formosa Chemicals positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China Petrochemical position performs unexpectedly, Formosa Chemicals 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 Chemicals will offset losses from the drop in Formosa Chemicals' long position.| China Petrochemical vs. Tainan Spinning Co | China Petrochemical vs. Lealea Enterprise Co | China Petrochemical vs. Ruentex Development Co | China Petrochemical vs. WiseChip Semiconductor |
| Formosa Chemicals vs. Formosa Plastics Corp | Formosa Chemicals vs. Nan Ya Plastics | Formosa Chemicals vs. Formosa Petrochemical Corp | Formosa Chemicals 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.
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