Correlation Between Formosa Chemicals and Chang Type
Can any of the company-specific risk be diversified away by investing in both Formosa Chemicals and Chang Type 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 Chang Type 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 Chang Type Industrial, you can compare the effects of market volatilities on Formosa Chemicals and Chang Type 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 Chang Type. Check out your portfolio center. Please also check ongoing floating volatility patterns of Formosa Chemicals and Chang Type.
Diversification Opportunities for Formosa Chemicals and Chang Type
0.82 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Formosa and Chang is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Formosa Chemicals Fibre and Chang Type Industrial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chang Type Industrial 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 Chang Type. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chang Type Industrial has no effect on the direction of Formosa Chemicals i.e., Formosa Chemicals and Chang Type go up and down completely randomly.
Pair Corralation between Formosa Chemicals and Chang Type
Assuming the 90 days trading horizon Formosa Chemicals Fibre is expected to under-perform the Chang Type. In addition to that, Formosa Chemicals is 1.5 times more volatile than Chang Type Industrial. It trades about -0.24 of its total potential returns per unit of risk. Chang Type Industrial is currently generating about -0.09 per unit of volatility. If you would invest 2,785 in Chang Type Industrial on October 26, 2024 and sell it today you would lose (170.00) from holding Chang Type Industrial or give up 6.1% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Formosa Chemicals Fibre vs. Chang Type Industrial
Performance |
| Timeline |
| Formosa Chemicals Fibre |
| Chang Type Industrial |
Formosa Chemicals and Chang Type Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Formosa Chemicals and Chang Type
The main advantage of trading using opposite Formosa Chemicals and Chang Type positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Formosa Chemicals position performs unexpectedly, Chang Type 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 Chang Type will offset losses from the drop in Chang Type's long position.| Formosa Chemicals vs. Nan Ya Plastics | Formosa Chemicals vs. China Steel Corp | Formosa Chemicals vs. Formosa Petrochemical Corp | Formosa Chemicals vs. Cathay Financial Holding |
| Chang Type vs. Hi Lai Foods Co | Chang Type vs. Formosa Chemicals Fibre | Chang Type vs. Thinking Electronic Industrial | Chang Type vs. BenQ Medical Technology |
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 Money Managers module to screen money managers from public funds and ETFs managed around the world.
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