Correlation Between China and Formosa Plastics
Can any of the company-specific risk be diversified away by investing in both China 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 China and Formosa Plastics into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between China Motor Corp and Formosa Plastics Corp, you can compare the effects of market volatilities on China 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 China with a short position of Formosa Plastics. Check out your portfolio center. Please also check ongoing floating volatility patterns of China and Formosa Plastics.
Diversification Opportunities for China and Formosa Plastics
-0.29 | Correlation Coefficient |
Very good diversification
The 3 months correlation between China and Formosa is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding China Motor Corp 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 China 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 China Motor Corp 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 China i.e., China and Formosa Plastics go up and down completely randomly.
Pair Corralation between China and Formosa Plastics
Assuming the 90 days trading horizon China Motor Corp is expected to generate 1.64 times more return on investment than Formosa Plastics. However, China is 1.64 times more volatile than Formosa Plastics Corp. It trades about 0.25 of its potential returns per unit of risk. Formosa Plastics Corp is currently generating about -0.26 per unit of risk. If you would invest 6,890 in China Motor Corp on September 1, 2024 and sell it today you would earn a total of 1,540 from holding China Motor Corp or generate 22.35% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 95.65% |
| Values | Daily Returns |
China Motor Corp vs. Formosa Plastics Corp
Performance |
| Timeline |
| China Motor Corp |
| Formosa Plastics Corp |
China and Formosa Plastics Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with China and Formosa Plastics
The main advantage of trading using opposite China and Formosa Plastics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China 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.| China vs. Chaintech Technology Corp | China vs. AVerMedia Technologies | China vs. Avision | China vs. Clevo Co |
| Formosa Plastics vs. Nan Ya Plastics | Formosa Plastics vs. Formosa Chemicals Fibre | Formosa Plastics vs. China Steel Corp | Formosa Plastics vs. Formosa Petrochemical Corp |
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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.
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