Correlation Between Yulon Nissan and Formosa Sumco
Can any of the company-specific risk be diversified away by investing in both Yulon Nissan and Formosa Sumco 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 Yulon Nissan and Formosa Sumco into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Yulon Nissan Motor and Formosa Sumco Technology, you can compare the effects of market volatilities on Yulon Nissan and Formosa Sumco 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 Yulon Nissan with a short position of Formosa Sumco. Check out your portfolio center. Please also check ongoing floating volatility patterns of Yulon Nissan and Formosa Sumco.
Diversification Opportunities for Yulon Nissan and Formosa Sumco
0.91 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Yulon and Formosa is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Yulon Nissan Motor and Formosa Sumco Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Formosa Sumco Technology and Yulon Nissan 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 Yulon Nissan Motor are associated (or correlated) with Formosa Sumco. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Formosa Sumco Technology has no effect on the direction of Yulon Nissan i.e., Yulon Nissan and Formosa Sumco go up and down completely randomly.
Pair Corralation between Yulon Nissan and Formosa Sumco
Assuming the 90 days trading horizon Yulon Nissan Motor is expected to under-perform the Formosa Sumco. But the stock apears to be less risky and, when comparing its historical volatility, Yulon Nissan Motor is 1.02 times less risky than Formosa Sumco. The stock trades about -0.19 of its potential returns per unit of risk. The Formosa Sumco Technology is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest 9,170 in Formosa Sumco Technology on November 4, 2024 and sell it today you would lose (30.00) from holding Formosa Sumco Technology or give up 0.33% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Yulon Nissan Motor vs. Formosa Sumco Technology
Performance |
| Timeline |
| Yulon Nissan Motor |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
| Formosa Sumco Technology |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
Yulon Nissan and Formosa Sumco Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Yulon Nissan and Formosa Sumco
The main advantage of trading using opposite Yulon Nissan and Formosa Sumco positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Yulon Nissan position performs unexpectedly, Formosa Sumco 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 Sumco will offset losses from the drop in Formosa Sumco's long position.The idea behind Yulon Nissan Motor and Formosa Sumco Technology 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.
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