Correlation Between Formosan Union and San Fu
Can any of the company-specific risk be diversified away by investing in both Formosan Union and San Fu 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 San Fu 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 San Fu Chemical, you can compare the effects of market volatilities on Formosan Union and San Fu 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 San Fu. Check out your portfolio center. Please also check ongoing floating volatility patterns of Formosan Union and San Fu.
Diversification Opportunities for Formosan Union and San Fu
0.68 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Formosan and San is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Formosan Union Chemical and San Fu Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on San Fu Chemical 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 San Fu. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of San Fu Chemical has no effect on the direction of Formosan Union i.e., Formosan Union and San Fu go up and down completely randomly.
Pair Corralation between Formosan Union and San Fu
Assuming the 90 days trading horizon Formosan Union is expected to generate 58.88 times less return on investment than San Fu. But when comparing it to its historical volatility, Formosan Union Chemical is 1.44 times less risky than San Fu. It trades about 0.0 of its potential returns per unit of risk. San Fu Chemical is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest 12,000 in San Fu Chemical on September 3, 2024 and sell it today you would earn a total of 1,400 from holding San Fu Chemical or generate 11.67% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Formosan Union Chemical vs. San Fu Chemical
Performance |
| Timeline |
| Formosan Union Chemical |
| San Fu Chemical |
Formosan Union and San Fu Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Formosan Union and San Fu
The main advantage of trading using opposite Formosan Union and San Fu positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Formosan Union position performs unexpectedly, San Fu 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 San Fu will offset losses from the drop in San Fu's long position.The idea behind Formosan Union Chemical and San Fu Chemical 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.| San Fu vs. Delta Electronics | San Fu vs. China Steel Chemical | San Fu vs. WiseChip Semiconductor | San Fu vs. Novatek Microelectronics Corp |
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 Bonds Directory module to find actively traded corporate debentures issued by US companies.
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