Correlation Between Chung Hung and Formosa Plastics
Can any of the company-specific risk be diversified away by investing in both Chung Hung and Formosa Plastics 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 Chung Hung and Formosa Plastics into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Chung Hung Steel and Formosa Plastics Corp, you can compare the effects of market volatilities on Chung Hung and Formosa Plastics 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 Chung Hung with a short position of Formosa Plastics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Chung Hung and Formosa Plastics.
Diversification Opportunities for Chung Hung and Formosa Plastics
0.36 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Chung and Formosa is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Chung Hung Steel and Formosa Plastics Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Formosa Plastics Corp and Chung Hung 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 Chung Hung Steel are associated (or correlated) with Formosa Plastics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Formosa Plastics Corp has no effect on the direction of Chung Hung i.e., Chung Hung and Formosa Plastics go up and down completely randomly.
Pair Corralation between Chung Hung and Formosa Plastics
Assuming the 90 days trading horizon Chung Hung Steel is expected to generate 1.54 times more return on investment than Formosa Plastics. However, Chung Hung is 1.54 times more volatile than Formosa Plastics Corp. It trades about -0.02 of its potential returns per unit of risk. Formosa Plastics Corp is currently generating about -0.12 per unit of risk. If you would invest 2,603 in Chung Hung Steel on September 3, 2024 and sell it today you would lose (633.00) from holding Chung Hung Steel or give up 24.32% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 99.79% |
| Values | Daily Returns |
Chung Hung Steel vs. Formosa Plastics Corp
Performance |
| Timeline |
| Chung Hung Steel |
| Formosa Plastics Corp |
Chung Hung and Formosa Plastics Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Chung Hung and Formosa Plastics
The main advantage of trading using opposite Chung Hung and Formosa Plastics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Chung Hung position performs unexpectedly, Formosa Plastics 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 Plastics will offset losses from the drop in Formosa Plastics' long position.The idea behind Chung Hung Steel and Formosa Plastics 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.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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.
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