Correlation Between Formosa Chemicals and Quintain Steel
Can any of the company-specific risk be diversified away by investing in both Formosa Chemicals and Quintain Steel 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 Quintain Steel 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 Quintain Steel Co, you can compare the effects of market volatilities on Formosa Chemicals and Quintain Steel 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 Quintain Steel. Check out your portfolio center. Please also check ongoing floating volatility patterns of Formosa Chemicals and Quintain Steel.
Diversification Opportunities for Formosa Chemicals and Quintain Steel
0.95 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Formosa and Quintain is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Formosa Chemicals Fibre and Quintain Steel Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Quintain Steel 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 Quintain Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Quintain Steel has no effect on the direction of Formosa Chemicals i.e., Formosa Chemicals and Quintain Steel go up and down completely randomly.
Pair Corralation between Formosa Chemicals and Quintain Steel
Assuming the 90 days trading horizon Formosa Chemicals Fibre is expected to under-perform the Quintain Steel. In addition to that, Formosa Chemicals is 1.73 times more volatile than Quintain Steel Co. It trades about -0.29 of its total potential returns per unit of risk. Quintain Steel Co is currently generating about -0.14 per unit of volatility. If you would invest 1,220 in Quintain Steel Co on November 7, 2024 and sell it today you would lose (125.00) from holding Quintain Steel Co or give up 10.25% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Formosa Chemicals Fibre vs. Quintain Steel Co
Performance |
| Timeline |
| Formosa Chemicals Fibre |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
| Quintain Steel |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
Formosa Chemicals and Quintain Steel Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Formosa Chemicals and Quintain Steel
The main advantage of trading using opposite Formosa Chemicals and Quintain Steel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Formosa Chemicals position performs unexpectedly, Quintain Steel 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 Quintain Steel will offset losses from the drop in Quintain Steel's long position.The idea behind Formosa Chemicals Fibre and Quintain Steel Co 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.
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