Correlation Between Shiny Chemical and Formosa Petrochemical
Can any of the company-specific risk be diversified away by investing in both Shiny Chemical and Formosa Petrochemical 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 Shiny Chemical and Formosa Petrochemical into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Shiny Chemical Industrial and Formosa Petrochemical Corp, you can compare the effects of market volatilities on Shiny Chemical and Formosa Petrochemical 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 Shiny Chemical with a short position of Formosa Petrochemical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shiny Chemical and Formosa Petrochemical.
Diversification Opportunities for Shiny Chemical and Formosa Petrochemical
0.65 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Shiny and Formosa is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Shiny Chemical Industrial and Formosa Petrochemical Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Formosa Petrochemical and Shiny 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 Shiny Chemical Industrial are associated (or correlated) with Formosa Petrochemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Formosa Petrochemical has no effect on the direction of Shiny Chemical i.e., Shiny Chemical and Formosa Petrochemical go up and down completely randomly.
Pair Corralation between Shiny Chemical and Formosa Petrochemical
Assuming the 90 days trading horizon Shiny Chemical Industrial is expected to generate 1.39 times more return on investment than Formosa Petrochemical. However, Shiny Chemical is 1.39 times more volatile than Formosa Petrochemical Corp. It trades about 0.05 of its potential returns per unit of risk. Formosa Petrochemical Corp is currently generating about -0.14 per unit of risk. If you would invest 12,600 in Shiny Chemical Industrial on September 12, 2024 and sell it today you would earn a total of 3,950 from holding Shiny Chemical Industrial or generate 31.35% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Shiny Chemical Industrial vs. Formosa Petrochemical Corp
Performance |
| Timeline |
| Shiny Chemical Industrial |
| Formosa Petrochemical |
Shiny Chemical and Formosa Petrochemical Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Shiny Chemical and Formosa Petrochemical
The main advantage of trading using opposite Shiny Chemical and Formosa Petrochemical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Shiny Chemical position performs unexpectedly, Formosa Petrochemical 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 Petrochemical will offset losses from the drop in Formosa Petrochemical's long position.| Shiny Chemical vs. Tainan Spinning Co | Shiny Chemical vs. Lealea Enterprise Co | Shiny Chemical vs. China Petrochemical Development | Shiny Chemical vs. Ruentex Development Co |
| Formosa Petrochemical vs. President Chain Store | Formosa Petrochemical vs. Huaku Development Co | Formosa Petrochemical vs. Formosa International Hotels | Formosa Petrochemical vs. Taiwan Fu Hsing |
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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.
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