Correlation Between Chunghwa Chemical and Formosa Laboratories
Can any of the company-specific risk be diversified away by investing in both Chunghwa Chemical and Formosa Laboratories 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 Chunghwa Chemical and Formosa Laboratories into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Chunghwa Chemical Synthesis and Formosa Laboratories, you can compare the effects of market volatilities on Chunghwa Chemical and Formosa Laboratories 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 Chunghwa Chemical with a short position of Formosa Laboratories. Check out your portfolio center. Please also check ongoing floating volatility patterns of Chunghwa Chemical and Formosa Laboratories.
Diversification Opportunities for Chunghwa Chemical and Formosa Laboratories
0.79 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Chunghwa and Formosa is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Chunghwa Chemical Synthesis and Formosa Laboratories in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Formosa Laboratories and Chunghwa Chemical 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 Chunghwa Chemical Synthesis are associated (or correlated) with Formosa Laboratories. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Formosa Laboratories has no effect on the direction of Chunghwa Chemical i.e., Chunghwa Chemical and Formosa Laboratories go up and down completely randomly.
Pair Corralation between Chunghwa Chemical and Formosa Laboratories
Assuming the 90 days trading horizon Chunghwa Chemical Synthesis is expected to under-perform the Formosa Laboratories. But the stock apears to be less risky and, when comparing its historical volatility, Chunghwa Chemical Synthesis is 1.73 times less risky than Formosa Laboratories. The stock trades about -0.12 of its potential returns per unit of risk. The Formosa Laboratories is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest 10,300 in Formosa Laboratories on September 3, 2024 and sell it today you would lose (2,700) from holding Formosa Laboratories or give up 26.21% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Chunghwa Chemical Synthesis vs. Formosa Laboratories
Performance |
| Timeline |
| Chunghwa Chemical |
| Formosa Laboratories |
Chunghwa Chemical and Formosa Laboratories Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Chunghwa Chemical and Formosa Laboratories
The main advantage of trading using opposite Chunghwa Chemical and Formosa Laboratories positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Chunghwa Chemical position performs unexpectedly, Formosa Laboratories 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 Laboratories will offset losses from the drop in Formosa Laboratories' long position.| Chunghwa Chemical vs. Sinphar Pharmaceutical Co | Chunghwa Chemical vs. WiseChip Semiconductor | Chunghwa Chemical vs. Novatek Microelectronics Corp | Chunghwa Chemical vs. Leader Electronics |
| Formosa Laboratories vs. Adimmune Corp | Formosa Laboratories vs. Chunghwa Chemical Synthesis | Formosa Laboratories vs. SCI Pharmtech | Formosa Laboratories vs. Grape King Bio |
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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.
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