Correlation Between Formosan Rubber and USI Corp
Can any of the company-specific risk be diversified away by investing in both Formosan Rubber and USI Corp 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 Rubber and USI Corp into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Formosan Rubber Group and USI Corp, you can compare the effects of market volatilities on Formosan Rubber and USI Corp 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 Rubber with a short position of USI Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Formosan Rubber and USI Corp.
Diversification Opportunities for Formosan Rubber and USI Corp
0.07 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Formosan and USI is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Formosan Rubber Group and USI Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on USI Corp and Formosan Rubber 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 Rubber Group are associated (or correlated) with USI Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of USI Corp has no effect on the direction of Formosan Rubber i.e., Formosan Rubber and USI Corp go up and down completely randomly.
Pair Corralation between Formosan Rubber and USI Corp
Assuming the 90 days trading horizon Formosan Rubber is expected to generate 3.22 times less return on investment than USI Corp. But when comparing it to its historical volatility, Formosan Rubber Group is 5.95 times less risky than USI Corp. It trades about 0.21 of its potential returns per unit of risk. USI Corp is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest 1,125 in USI Corp on December 1, 2024 and sell it today you would earn a total of 70.00 from holding USI Corp or generate 6.22% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Formosan Rubber Group vs. USI Corp
Performance |
| Timeline |
| Formosan Rubber Group |
| USI Corp |
Formosan Rubber and USI Corp Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Formosan Rubber and USI Corp
The main advantage of trading using opposite Formosan Rubber and USI Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Formosan Rubber position performs unexpectedly, USI Corp 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 USI Corp will offset losses from the drop in USI Corp's long position.| Formosan Rubber vs. Nankang Rubber Tire | Formosan Rubber vs. Federal Corp | Formosan Rubber vs. Kenda Rubber Industrial | Formosan Rubber vs. Yulon Motor Co |
| USI Corp vs. Asia Polymer Corp | USI Corp vs. Taiwan Styrene Monomer | USI Corp vs. UPC Technology Corp | USI Corp vs. China Petrochemical Development |
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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.
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