Correlation Between Formosa Chemicals and Sesoda Corp
Can any of the company-specific risk be diversified away by investing in both Formosa Chemicals and Sesoda Corp 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 Sesoda Corp 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 Sesoda Corp, you can compare the effects of market volatilities on Formosa Chemicals and Sesoda Corp 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 Sesoda Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Formosa Chemicals and Sesoda Corp.
Diversification Opportunities for Formosa Chemicals and Sesoda Corp
-0.4 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Formosa and Sesoda is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Formosa Chemicals Fibre and Sesoda Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sesoda Corp 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 Sesoda Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sesoda Corp has no effect on the direction of Formosa Chemicals i.e., Formosa Chemicals and Sesoda Corp go up and down completely randomly.
Pair Corralation between Formosa Chemicals and Sesoda Corp
Assuming the 90 days trading horizon Formosa Chemicals Fibre is expected to under-perform the Sesoda Corp. But the stock apears to be less risky and, when comparing its historical volatility, Formosa Chemicals Fibre is 1.32 times less risky than Sesoda Corp. The stock trades about -0.11 of its potential returns per unit of risk. The Sesoda Corp is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest 4,275 in Sesoda Corp on September 3, 2024 and sell it today you would lose (95.00) from holding Sesoda Corp or give up 2.22% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Formosa Chemicals Fibre vs. Sesoda Corp
Performance |
| Timeline |
| Formosa Chemicals Fibre |
| Sesoda Corp |
Formosa Chemicals and Sesoda Corp Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Formosa Chemicals and Sesoda Corp
The main advantage of trading using opposite Formosa Chemicals and Sesoda Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Formosa Chemicals position performs unexpectedly, Sesoda Corp 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 Sesoda Corp will offset losses from the drop in Sesoda Corp's long position.The idea behind Formosa Chemicals Fibre and Sesoda Corp 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.
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