Correlation Between Formosa Chemicals and Grand Pacific
Can any of the company-specific risk be diversified away by investing in both Formosa Chemicals and Grand Pacific 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 Chemicals and Grand Pacific into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Formosa Chemicals Fibre and Grand Pacific Petrochemical, you can compare the effects of market volatilities on Formosa Chemicals and Grand Pacific 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 Chemicals with a short position of Grand Pacific. Check out your portfolio center. Please also check ongoing floating volatility patterns of Formosa Chemicals and Grand Pacific.
Diversification Opportunities for Formosa Chemicals and Grand Pacific
0.82 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Formosa and Grand is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Formosa Chemicals Fibre and Grand Pacific Petrochemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Grand Pacific Petroc and Formosa Chemicals 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 Chemicals Fibre are associated (or correlated) with Grand Pacific. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Grand Pacific Petroc has no effect on the direction of Formosa Chemicals i.e., Formosa Chemicals and Grand Pacific go up and down completely randomly.
Pair Corralation between Formosa Chemicals and Grand Pacific
Assuming the 90 days trading horizon Formosa Chemicals Fibre is expected to generate 15.44 times more return on investment than Grand Pacific. However, Formosa Chemicals is 15.44 times more volatile than Grand Pacific Petrochemical. It trades about 0.09 of its potential returns per unit of risk. Grand Pacific Petrochemical is currently generating about -0.07 per unit of risk. If you would invest 2,705 in Formosa Chemicals Fibre on November 3, 2024 and sell it today you would earn a total of 105.00 from holding Formosa Chemicals Fibre or generate 3.88% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Formosa Chemicals Fibre vs. Grand Pacific Petrochemical
Performance |
| Timeline |
| Formosa Chemicals Fibre |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
| Grand Pacific Petroc |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
Formosa Chemicals and Grand Pacific Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Formosa Chemicals and Grand Pacific
The main advantage of trading using opposite Formosa Chemicals and Grand Pacific positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Formosa Chemicals position performs unexpectedly, Grand Pacific 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 Grand Pacific will offset losses from the drop in Grand Pacific's long position.The idea behind Formosa Chemicals Fibre and Grand Pacific Petrochemical pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.
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