Correlation Between Formosan Union and Basso Industry
Can any of the company-specific risk be diversified away by investing in both Formosan Union and Basso Industry 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 Formosan Union and Basso Industry into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Formosan Union Chemical and Basso Industry Corp, you can compare the effects of market volatilities on Formosan Union and Basso Industry 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 Formosan Union with a short position of Basso Industry. Check out your portfolio center. Please also check ongoing floating volatility patterns of Formosan Union and Basso Industry.
Diversification Opportunities for Formosan Union and Basso Industry
0.77 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Formosan and Basso is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Formosan Union Chemical and Basso Industry Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Basso Industry Corp and Formosan Union 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 Formosan Union Chemical are associated (or correlated) with Basso Industry. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Basso Industry Corp has no effect on the direction of Formosan Union i.e., Formosan Union and Basso Industry go up and down completely randomly.
Pair Corralation between Formosan Union and Basso Industry
Assuming the 90 days trading horizon Formosan Union Chemical is expected to under-perform the Basso Industry. But the stock apears to be less risky and, when comparing its historical volatility, Formosan Union Chemical is 1.01 times less risky than Basso Industry. The stock trades about -0.24 of its potential returns per unit of risk. The Basso Industry Corp is currently generating about -0.07 of returns per unit of risk over similar time horizon. If you would invest 4,350 in Basso Industry Corp on September 2, 2024 and sell it today you would lose (80.00) from holding Basso Industry Corp or give up 1.84% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Formosan Union Chemical vs. Basso Industry Corp
Performance |
| Timeline |
| Formosan Union Chemical |
| Basso Industry Corp |
Formosan Union and Basso Industry Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Formosan Union and Basso Industry
The main advantage of trading using opposite Formosan Union and Basso Industry positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Formosan Union position performs unexpectedly, Basso Industry 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 Basso Industry will offset losses from the drop in Basso Industry's long position.| Formosan Union vs. Basso Industry Corp | Formosan Union vs. Chung Hsin Electric Machinery | Formosan Union vs. TYC Brother Industrial | Formosan Union vs. TECO Electric Machinery |
| Basso Industry vs. Chaintech Technology Corp | Basso Industry vs. Avision | Basso Industry vs. Clevo Co | Basso Industry vs. Elitegroup Computer Systems |
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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .
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