Correlation Between Hota Industrial and Formosa Plastics
Can any of the company-specific risk be diversified away by investing in both Hota Industrial and Formosa Plastics 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 Hota Industrial and Formosa Plastics into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Hota Industrial Mfg and Formosa Plastics Corp, you can compare the effects of market volatilities on Hota Industrial and Formosa Plastics 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 Hota Industrial with a short position of Formosa Plastics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hota Industrial and Formosa Plastics.
Diversification Opportunities for Hota Industrial and Formosa Plastics
-0.64 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Hota and Formosa is -0.64. Overlapping area represents the amount of risk that can be diversified away by holding Hota Industrial Mfg and Formosa Plastics Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Formosa Plastics Corp and Hota Industrial 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 Hota Industrial Mfg are associated (or correlated) with Formosa Plastics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Formosa Plastics Corp has no effect on the direction of Hota Industrial i.e., Hota Industrial and Formosa Plastics go up and down completely randomly.
Pair Corralation between Hota Industrial and Formosa Plastics
Assuming the 90 days trading horizon Hota Industrial Mfg is expected to under-perform the Formosa Plastics. But the stock apears to be less risky and, when comparing its historical volatility, Hota Industrial Mfg is 1.29 times less risky than Formosa Plastics. The stock trades about -0.23 of its potential returns per unit of risk. The Formosa Plastics Corp is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest 3,490 in Formosa Plastics Corp on November 2, 2024 and sell it today you would earn a total of 135.00 from holding Formosa Plastics Corp or generate 3.87% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Hota Industrial Mfg vs. Formosa Plastics Corp
Performance |
| Timeline |
| Hota Industrial Mfg |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Insignificant
| Formosa Plastics Corp |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
Hota Industrial and Formosa Plastics Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Hota Industrial and Formosa Plastics
The main advantage of trading using opposite Hota Industrial and Formosa Plastics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Hota Industrial position performs unexpectedly, Formosa Plastics 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 Formosa Plastics will offset losses from the drop in Formosa Plastics' long position.The idea behind Hota Industrial Mfg and Formosa Plastics Corp 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.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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.
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