Correlation Between Chung Hsin and Formosan Rubber

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Can any of the company-specific risk be diversified away by investing in both Chung Hsin and Formosan Rubber 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 Chung Hsin and Formosan Rubber into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Chung Hsin Electric Machinery and Formosan Rubber Group, you can compare the effects of market volatilities on Chung Hsin and Formosan Rubber 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 Chung Hsin with a short position of Formosan Rubber. Check out your portfolio center. Please also check ongoing floating volatility patterns of Chung Hsin and Formosan Rubber.

Diversification Opportunities for Chung Hsin and Formosan Rubber

0.51
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Chung and Formosan is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Chung Hsin Electric Machinery and Formosan Rubber Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Formosan Rubber Group and Chung Hsin 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 Chung Hsin Electric Machinery are associated (or correlated) with Formosan Rubber. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Formosan Rubber Group has no effect on the direction of Chung Hsin i.e., Chung Hsin and Formosan Rubber go up and down completely randomly.

Pair Corralation between Chung Hsin and Formosan Rubber

Assuming the 90 days trading horizon Chung Hsin Electric Machinery is expected to under-perform the Formosan Rubber. In addition to that, Chung Hsin is 4.34 times more volatile than Formosan Rubber Group. It trades about -0.01 of its total potential returns per unit of risk. Formosan Rubber Group is currently generating about 0.0 per unit of volatility. If you would invest  2,550  in Formosan Rubber Group on September 1, 2024 and sell it today you would earn a total of  0.00  from holding Formosan Rubber Group or generate 0.0% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Chung Hsin Electric Machinery  vs.  Formosan Rubber Group

 Performance 
       Timeline  
Chung Hsin Electric 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Chung Hsin Electric Machinery has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.
Formosan Rubber Group 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Formosan Rubber Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Formosan Rubber is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Chung Hsin and Formosan Rubber Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Chung Hsin and Formosan Rubber

The main advantage of trading using opposite Chung Hsin and Formosan Rubber positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Chung Hsin position performs unexpectedly, Formosan Rubber 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 Formosan Rubber will offset losses from the drop in Formosan Rubber's long position.
The idea behind Chung Hsin Electric Machinery and Formosan Rubber Group 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.
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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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