Correlation Between Formosa Chemicals and Eternal Materials
Can any of the company-specific risk be diversified away by investing in both Formosa Chemicals and Eternal Materials 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 Eternal Materials 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 Eternal Materials Co, you can compare the effects of market volatilities on Formosa Chemicals and Eternal Materials 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 Eternal Materials. Check out your portfolio center. Please also check ongoing floating volatility patterns of Formosa Chemicals and Eternal Materials.
Diversification Opportunities for Formosa Chemicals and Eternal Materials
0.96 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Formosa and Eternal is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Formosa Chemicals Fibre and Eternal Materials Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eternal Materials 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 Eternal Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eternal Materials has no effect on the direction of Formosa Chemicals i.e., Formosa Chemicals and Eternal Materials go up and down completely randomly.
Pair Corralation between Formosa Chemicals and Eternal Materials
Assuming the 90 days trading horizon Formosa Chemicals Fibre is expected to under-perform the Eternal Materials. In addition to that, Formosa Chemicals is 2.63 times more volatile than Eternal Materials Co. It trades about -0.02 of its total potential returns per unit of risk. Eternal Materials Co is currently generating about 0.01 per unit of volatility. If you would invest 2,830 in Eternal Materials Co on October 28, 2024 and sell it today you would earn a total of 5.00 from holding Eternal Materials Co or generate 0.18% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Formosa Chemicals Fibre vs. Eternal Materials Co
Performance |
| Timeline |
| Formosa Chemicals Fibre |
| Eternal Materials |
Formosa Chemicals and Eternal Materials Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Formosa Chemicals and Eternal Materials
The main advantage of trading using opposite Formosa Chemicals and Eternal Materials positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Formosa Chemicals position performs unexpectedly, Eternal Materials 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 Eternal Materials will offset losses from the drop in Eternal Materials' long position.| Formosa Chemicals vs. Formosa Plastics Corp | Formosa Chemicals vs. Nan Ya Plastics | Formosa Chemicals vs. Formosa Petrochemical Corp | Formosa Chemicals vs. Cathay Financial Holding |
| Eternal Materials vs. Taiwan Fertilizer Co | Eternal Materials vs. Nan Ya Plastics | Eternal Materials vs. Formosa Chemicals Fibre | Eternal Materials vs. Far Eastern New |
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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.
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