Correlation Between Formosa International and Prime Oil
Can any of the company-specific risk be diversified away by investing in both Formosa International and Prime Oil 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 Formosa International and Prime Oil into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Formosa International Hotels and Prime Oil Chemical, you can compare the effects of market volatilities on Formosa International and Prime Oil 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 Formosa International with a short position of Prime Oil. Check out your portfolio center. Please also check ongoing floating volatility patterns of Formosa International and Prime Oil.
Diversification Opportunities for Formosa International and Prime Oil
0.81 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Formosa and Prime is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Formosa International Hotels and Prime Oil Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prime Oil Chemical and Formosa International 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 Formosa International Hotels are associated (or correlated) with Prime Oil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prime Oil Chemical has no effect on the direction of Formosa International i.e., Formosa International and Prime Oil go up and down completely randomly.
Pair Corralation between Formosa International and Prime Oil
Assuming the 90 days trading horizon Formosa International Hotels is expected to under-perform the Prime Oil. In addition to that, Formosa International is 1.42 times more volatile than Prime Oil Chemical. It trades about -0.3 of its total potential returns per unit of risk. Prime Oil Chemical is currently generating about -0.16 per unit of volatility. If you would invest 1,840 in Prime Oil Chemical on August 27, 2024 and sell it today you would lose (30.00) from holding Prime Oil Chemical or give up 1.63% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Formosa International Hotels vs. Prime Oil Chemical
Performance |
| Timeline |
| Formosa International |
| Prime Oil Chemical |
Formosa International and Prime Oil Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Formosa International and Prime Oil
The main advantage of trading using opposite Formosa International and Prime Oil positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Formosa International position performs unexpectedly, Prime Oil 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 Prime Oil will offset losses from the drop in Prime Oil's long position.| Formosa International vs. President Chain Store | Formosa International vs. Uni President Enterprises Corp | Formosa International vs. Ambassador Hotel | Formosa International vs. Hotai Motor Co |
| Prime Oil vs. President Chain Store | Prime Oil vs. Huaku Development Co | Prime Oil vs. Formosa International Hotels | Prime Oil vs. Mercuries Associates Holding |
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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.
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