Correlation Between Formosa Chemicals and International CSRC
Can any of the company-specific risk be diversified away by investing in both Formosa Chemicals and International CSRC 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 International CSRC 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 International CSRC Investment, you can compare the effects of market volatilities on Formosa Chemicals and International CSRC 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 International CSRC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Formosa Chemicals and International CSRC.
Diversification Opportunities for Formosa Chemicals and International CSRC
0.95 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Formosa and International is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Formosa Chemicals Fibre and International CSRC Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International CSRC 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 International CSRC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of International CSRC has no effect on the direction of Formosa Chemicals i.e., Formosa Chemicals and International CSRC go up and down completely randomly.
Pair Corralation between Formosa Chemicals and International CSRC
Assuming the 90 days trading horizon Formosa Chemicals Fibre is expected to under-perform the International CSRC. In addition to that, Formosa Chemicals is 1.85 times more volatile than International CSRC Investment. It trades about -0.02 of its total potential returns per unit of risk. International CSRC Investment is currently generating about 0.04 per unit of volatility. If you would invest 1,260 in International CSRC Investment on November 6, 2024 and sell it today you would earn a total of 10.00 from holding International CSRC Investment or generate 0.79% 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. International CSRC Investment
Performance |
| Timeline |
| Formosa Chemicals Fibre |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
| International CSRC |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
Formosa Chemicals and International CSRC Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Formosa Chemicals and International CSRC
The main advantage of trading using opposite Formosa Chemicals and International CSRC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Formosa Chemicals position performs unexpectedly, International CSRC 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 International CSRC will offset losses from the drop in International CSRC's long position.The idea behind Formosa Chemicals Fibre and International CSRC Investment 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.
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