Correlation Between Long Chen and Formosa Petrochemical
Can any of the company-specific risk be diversified away by investing in both Long Chen 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 Long Chen and Formosa Petrochemical into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Long Chen Paper and Formosa Petrochemical Corp, you can compare the effects of market volatilities on Long Chen 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 Long Chen with a short position of Formosa Petrochemical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Long Chen and Formosa Petrochemical.
Diversification Opportunities for Long Chen and Formosa Petrochemical
0.84 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Long and Formosa is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Long Chen Paper and Formosa Petrochemical Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Formosa Petrochemical and Long Chen 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 Long Chen Paper 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 Long Chen i.e., Long Chen and Formosa Petrochemical go up and down completely randomly.
Pair Corralation between Long Chen and Formosa Petrochemical
Assuming the 90 days trading horizon Long Chen Paper is expected to generate 0.77 times more return on investment than Formosa Petrochemical. However, Long Chen Paper is 1.3 times less risky than Formosa Petrochemical. It trades about -0.3 of its potential returns per unit of risk. Formosa Petrochemical Corp is currently generating about -0.48 per unit of risk. If you would invest 1,340 in Long Chen Paper on September 3, 2024 and sell it today you would lose (105.00) from holding Long Chen Paper or give up 7.84% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Long Chen Paper vs. Formosa Petrochemical Corp
Performance |
| Timeline |
| Long Chen Paper |
| Formosa Petrochemical |
Long Chen and Formosa Petrochemical Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Long Chen and Formosa Petrochemical
The main advantage of trading using opposite Long Chen and Formosa Petrochemical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Long Chen 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.The idea behind Long Chen Paper and Formosa Petrochemical 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.| Formosa Petrochemical vs. Taishin Financial Holding | Formosa Petrochemical vs. Oceanic Beverages Co | Formosa Petrochemical vs. Union Bank of | Formosa Petrochemical vs. Professional Computer Technology |
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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.
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