Correlation Between Aerospace Industrial and Formosa Plastics
Can any of the company-specific risk be diversified away by investing in both Aerospace Industrial 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 Aerospace Industrial and Formosa Plastics into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Aerospace Industrial Development and Formosa Plastics Corp, you can compare the effects of market volatilities on Aerospace Industrial 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 Aerospace Industrial with a short position of Formosa Plastics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Aerospace Industrial and Formosa Plastics.
Diversification Opportunities for Aerospace Industrial and Formosa Plastics
0.76 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Aerospace and Formosa is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Aerospace Industrial Developme 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 Aerospace Industrial 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 Aerospace Industrial Development 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 Aerospace Industrial i.e., Aerospace Industrial and Formosa Plastics go up and down completely randomly.
Pair Corralation between Aerospace Industrial and Formosa Plastics
Assuming the 90 days trading horizon Aerospace Industrial Development is expected to generate 0.64 times more return on investment than Formosa Plastics. However, Aerospace Industrial Development is 1.56 times less risky than Formosa Plastics. It trades about -0.07 of its potential returns per unit of risk. Formosa Plastics Corp is currently generating about -0.2 per unit of risk. If you would invest 4,435 in Aerospace Industrial Development on August 31, 2024 and sell it today you would lose (105.00) from holding Aerospace Industrial Development or give up 2.37% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Aerospace Industrial Developme vs. Formosa Plastics Corp
Performance |
| Timeline |
| Aerospace Industrial |
| Formosa Plastics Corp |
Aerospace Industrial and Formosa Plastics Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Aerospace Industrial and Formosa Plastics
The main advantage of trading using opposite Aerospace Industrial and Formosa Plastics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Aerospace Industrial 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.| Aerospace Industrial vs. CSBC Corp Taiwan | Aerospace Industrial vs. Eva Airways Corp | Aerospace Industrial vs. Taiwan High Speed | Aerospace Industrial vs. China Airlines |
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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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.
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