Correlation Between Hon Hai and Formosa Petrochemical
Can any of the company-specific risk be diversified away by investing in both Hon Hai and Formosa Petrochemical 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 Hon Hai and Formosa Petrochemical into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Hon Hai Precision and Formosa Petrochemical Corp, you can compare the effects of market volatilities on Hon Hai and Formosa Petrochemical 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 Hon Hai with a short position of Formosa Petrochemical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hon Hai and Formosa Petrochemical.
Diversification Opportunities for Hon Hai and Formosa Petrochemical
-0.45 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Hon and Formosa is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding Hon Hai Precision and Formosa Petrochemical Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Formosa Petrochemical and Hon Hai 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 Hon Hai Precision are associated (or correlated) with Formosa Petrochemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Formosa Petrochemical has no effect on the direction of Hon Hai i.e., Hon Hai and Formosa Petrochemical go up and down completely randomly.
Pair Corralation between Hon Hai and Formosa Petrochemical
Assuming the 90 days trading horizon Hon Hai Precision is expected to generate 1.69 times more return on investment than Formosa Petrochemical. However, Hon Hai is 1.69 times more volatile than Formosa Petrochemical Corp. It trades about 0.15 of its potential returns per unit of risk. Formosa Petrochemical Corp is currently generating about -0.16 per unit of risk. If you would invest 10,250 in Hon Hai Precision on August 28, 2024 and sell it today you would earn a total of 10,800 from holding Hon Hai Precision or generate 105.37% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Hon Hai Precision vs. Formosa Petrochemical Corp
Performance |
| Timeline |
| Hon Hai Precision |
| Formosa Petrochemical |
Hon Hai and Formosa Petrochemical Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Hon Hai and Formosa Petrochemical
The main advantage of trading using opposite Hon Hai and Formosa Petrochemical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Hon Hai position performs unexpectedly, Formosa Petrochemical 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 Petrochemical will offset losses from the drop in Formosa Petrochemical's long position.| Hon Hai vs. United Microelectronics | Hon Hai vs. MediaTek | Hon Hai vs. Chunghwa Telecom Co | Hon Hai vs. Delta Electronics |
| Formosa Petrochemical vs. U Media Communications | Formosa Petrochemical vs. WinMate Communication INC | Formosa Petrochemical vs. GAME HOURS | Formosa Petrochemical vs. International Games System |
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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.
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