Correlation Between Formosa Chemicals and Dawushan Farm
Can any of the company-specific risk be diversified away by investing in both Formosa Chemicals and Dawushan Farm 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 Dawushan Farm 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 Dawushan Farm Tech, you can compare the effects of market volatilities on Formosa Chemicals and Dawushan Farm 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 Dawushan Farm. Check out your portfolio center. Please also check ongoing floating volatility patterns of Formosa Chemicals and Dawushan Farm.
Diversification Opportunities for Formosa Chemicals and Dawushan Farm
-0.33 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Formosa and Dawushan is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Formosa Chemicals Fibre and Dawushan Farm Tech in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dawushan Farm Tech 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 Dawushan Farm. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dawushan Farm Tech has no effect on the direction of Formosa Chemicals i.e., Formosa Chemicals and Dawushan Farm go up and down completely randomly.
Pair Corralation between Formosa Chemicals and Dawushan Farm
Assuming the 90 days trading horizon Formosa Chemicals Fibre is expected to under-perform the Dawushan Farm. In addition to that, Formosa Chemicals is 2.2 times more volatile than Dawushan Farm Tech. It trades about -0.39 of its total potential returns per unit of risk. Dawushan Farm Tech is currently generating about 0.01 per unit of volatility. If you would invest 4,800 in Dawushan Farm Tech on October 14, 2024 and sell it today you would earn a total of 10.00 from holding Dawushan Farm Tech or generate 0.21% 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. Dawushan Farm Tech
Performance |
| Timeline |
| Formosa Chemicals Fibre |
| Dawushan Farm Tech |
Formosa Chemicals and Dawushan Farm Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Formosa Chemicals and Dawushan Farm
The main advantage of trading using opposite Formosa Chemicals and Dawushan Farm positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Formosa Chemicals position performs unexpectedly, Dawushan Farm 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 Dawushan Farm will offset losses from the drop in Dawushan Farm'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 |
| Dawushan Farm vs. Hannstar Display Corp | Dawushan Farm vs. Formosa Chemicals Fibre | Dawushan Farm vs. Taiwan Speciality Chemicals | Dawushan Farm vs. Ambassador Hotel |
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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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