Correlation Between Formosa Chemicals and Cheng Shin
Can any of the company-specific risk be diversified away by investing in both Formosa Chemicals and Cheng Shin 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 Cheng Shin 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 Cheng Shin Rubber, you can compare the effects of market volatilities on Formosa Chemicals and Cheng Shin 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 Cheng Shin. Check out your portfolio center. Please also check ongoing floating volatility patterns of Formosa Chemicals and Cheng Shin.
Diversification Opportunities for Formosa Chemicals and Cheng Shin
-0.39 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Formosa and Cheng is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding Formosa Chemicals Fibre and Cheng Shin Rubber in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cheng Shin Rubber 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 Cheng Shin. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cheng Shin Rubber has no effect on the direction of Formosa Chemicals i.e., Formosa Chemicals and Cheng Shin go up and down completely randomly.
Pair Corralation between Formosa Chemicals and Cheng Shin
Assuming the 90 days trading horizon Formosa Chemicals Fibre is expected to under-perform the Cheng Shin. In addition to that, Formosa Chemicals is 1.06 times more volatile than Cheng Shin Rubber. It trades about -0.24 of its total potential returns per unit of risk. Cheng Shin Rubber is currently generating about 0.06 per unit of volatility. If you would invest 4,640 in Cheng Shin Rubber on October 26, 2024 and sell it today you would earn a total of 325.00 from holding Cheng Shin Rubber or generate 7.0% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Formosa Chemicals Fibre vs. Cheng Shin Rubber
Performance |
| Timeline |
| Formosa Chemicals Fibre |
| Cheng Shin Rubber |
Formosa Chemicals and Cheng Shin Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Formosa Chemicals and Cheng Shin
The main advantage of trading using opposite Formosa Chemicals and Cheng Shin positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Formosa Chemicals position performs unexpectedly, Cheng Shin 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 Cheng Shin will offset losses from the drop in Cheng Shin'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 |
| Cheng Shin vs. Uni President Enterprises Corp | Cheng Shin vs. Formosa Chemicals Fibre | Cheng Shin vs. Asia Cement Corp | Cheng Shin vs. Pou Chen Corp |
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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.
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