Correlation Between Formosa Chemicals and Kenmec Mechanical
Can any of the company-specific risk be diversified away by investing in both Formosa Chemicals and Kenmec Mechanical 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 Kenmec Mechanical 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 Kenmec Mechanical Engineering, you can compare the effects of market volatilities on Formosa Chemicals and Kenmec Mechanical 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 Kenmec Mechanical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Formosa Chemicals and Kenmec Mechanical.
Diversification Opportunities for Formosa Chemicals and Kenmec Mechanical
0.74 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Formosa and Kenmec is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Formosa Chemicals Fibre and Kenmec Mechanical Engineering in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kenmec Mechanical 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 Kenmec Mechanical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kenmec Mechanical has no effect on the direction of Formosa Chemicals i.e., Formosa Chemicals and Kenmec Mechanical go up and down completely randomly.
Pair Corralation between Formosa Chemicals and Kenmec Mechanical
Assuming the 90 days trading horizon Formosa Chemicals Fibre is expected to under-perform the Kenmec Mechanical. But the stock apears to be less risky and, when comparing its historical volatility, Formosa Chemicals Fibre is 1.69 times less risky than Kenmec Mechanical. The stock trades about -0.17 of its potential returns per unit of risk. The Kenmec Mechanical Engineering is currently generating about -0.07 of returns per unit of risk over similar time horizon. If you would invest 11,800 in Kenmec Mechanical Engineering on September 3, 2024 and sell it today you would lose (3,280) from holding Kenmec Mechanical Engineering or give up 27.8% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Formosa Chemicals Fibre vs. Kenmec Mechanical Engineering
Performance |
| Timeline |
| Formosa Chemicals Fibre |
| Kenmec Mechanical |
Formosa Chemicals and Kenmec Mechanical Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Formosa Chemicals and Kenmec Mechanical
The main advantage of trading using opposite Formosa Chemicals and Kenmec Mechanical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Formosa Chemicals position performs unexpectedly, Kenmec Mechanical 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 Kenmec Mechanical will offset losses from the drop in Kenmec Mechanical's long position.The idea behind Formosa Chemicals Fibre and Kenmec Mechanical Engineering 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.| Kenmec Mechanical vs. Highlight Tech | Kenmec Mechanical vs. WiseChip Semiconductor | Kenmec Mechanical vs. Novatek Microelectronics Corp | Kenmec Mechanical vs. Leader Electronics |
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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.
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