Correlation Between Formosa Chemicals and Taiwan Allied
Can any of the company-specific risk be diversified away by investing in both Formosa Chemicals and Taiwan Allied 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 Taiwan Allied 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 Taiwan Allied Container, you can compare the effects of market volatilities on Formosa Chemicals and Taiwan Allied 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 Taiwan Allied. Check out your portfolio center. Please also check ongoing floating volatility patterns of Formosa Chemicals and Taiwan Allied.
Diversification Opportunities for Formosa Chemicals and Taiwan Allied
0.46 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Formosa and Taiwan is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Formosa Chemicals Fibre and Taiwan Allied Container in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Taiwan Allied Container 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 Taiwan Allied. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Taiwan Allied Container has no effect on the direction of Formosa Chemicals i.e., Formosa Chemicals and Taiwan Allied go up and down completely randomly.
Pair Corralation between Formosa Chemicals and Taiwan Allied
Assuming the 90 days trading horizon Formosa Chemicals Fibre is expected to under-perform the Taiwan Allied. In addition to that, Formosa Chemicals is 1.36 times more volatile than Taiwan Allied Container. It trades about -0.05 of its total potential returns per unit of risk. Taiwan Allied Container is currently generating about 0.11 per unit of volatility. If you would invest 3,470 in Taiwan Allied Container on October 25, 2024 and sell it today you would earn a total of 160.00 from holding Taiwan Allied Container or generate 4.61% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 95.45% |
| Values | Daily Returns |
Formosa Chemicals Fibre vs. Taiwan Allied Container
Performance |
| Timeline |
| Formosa Chemicals Fibre |
| Taiwan Allied Container |
Formosa Chemicals and Taiwan Allied Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Formosa Chemicals and Taiwan Allied
The main advantage of trading using opposite Formosa Chemicals and Taiwan Allied positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Formosa Chemicals position performs unexpectedly, Taiwan Allied 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 Taiwan Allied will offset losses from the drop in Taiwan Allied's 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 |
| Taiwan Allied vs. Holtek Semiconductor | Taiwan Allied vs. Far EasTone Telecommunications | Taiwan Allied vs. Powerchip Semiconductor Manufacturing | Taiwan Allied vs. Taiwan Semiconductor Co |
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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.
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