Correlation Between Formosan Rubber and WiseChip Semiconductor
Can any of the company-specific risk be diversified away by investing in both Formosan Rubber and WiseChip Semiconductor 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 WiseChip Semiconductor 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 WiseChip Semiconductor, you can compare the effects of market volatilities on Formosan Rubber and WiseChip Semiconductor 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 WiseChip Semiconductor. Check out your portfolio center. Please also check ongoing floating volatility patterns of Formosan Rubber and WiseChip Semiconductor.
Diversification Opportunities for Formosan Rubber and WiseChip Semiconductor
-0.02 | Correlation Coefficient |
Good diversification
The 3 months correlation between Formosan and WiseChip is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding Formosan Rubber Group and WiseChip Semiconductor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WiseChip Semiconductor 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 WiseChip Semiconductor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WiseChip Semiconductor has no effect on the direction of Formosan Rubber i.e., Formosan Rubber and WiseChip Semiconductor go up and down completely randomly.
Pair Corralation between Formosan Rubber and WiseChip Semiconductor
Assuming the 90 days trading horizon Formosan Rubber is expected to generate 3.07 times less return on investment than WiseChip Semiconductor. But when comparing it to its historical volatility, Formosan Rubber Group is 4.14 times less risky than WiseChip Semiconductor. It trades about 0.04 of its potential returns per unit of risk. WiseChip Semiconductor is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest 3,280 in WiseChip Semiconductor on November 7, 2024 and sell it today you would earn a total of 25.00 from holding WiseChip Semiconductor or generate 0.76% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Formosan Rubber Group vs. WiseChip Semiconductor
Performance |
| Timeline |
| Formosan Rubber Group |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Weak
| WiseChip Semiconductor |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
Formosan Rubber and WiseChip Semiconductor Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Formosan Rubber and WiseChip Semiconductor
The main advantage of trading using opposite Formosan Rubber and WiseChip Semiconductor positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Formosan Rubber position performs unexpectedly, WiseChip Semiconductor 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 WiseChip Semiconductor will offset losses from the drop in WiseChip Semiconductor's long position.The idea behind Formosan Rubber Group and WiseChip Semiconductor 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.
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