Correlation Between Chang Hwa and Formosa Plastics
Can any of the company-specific risk be diversified away by investing in both Chang Hwa 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 Chang Hwa and Formosa Plastics into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Chang Hwa Commercial and Formosa Plastics Corp, you can compare the effects of market volatilities on Chang Hwa 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 Chang Hwa with a short position of Formosa Plastics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Chang Hwa and Formosa Plastics.
Diversification Opportunities for Chang Hwa and Formosa Plastics
0.29 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Chang and Formosa is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Chang Hwa Commercial 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 Chang Hwa 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 Chang Hwa Commercial 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 Chang Hwa i.e., Chang Hwa and Formosa Plastics go up and down completely randomly.
Pair Corralation between Chang Hwa and Formosa Plastics
Assuming the 90 days trading horizon Chang Hwa Commercial is expected to generate 0.23 times more return on investment than Formosa Plastics. However, Chang Hwa Commercial is 4.28 times less risky than Formosa Plastics. It trades about -0.05 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 1,770 in Chang Hwa Commercial on September 1, 2024 and sell it today you would lose (10.00) from holding Chang Hwa Commercial or give up 0.56% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Chang Hwa Commercial vs. Formosa Plastics Corp
Performance |
| Timeline |
| Chang Hwa Commercial |
| Formosa Plastics Corp |
Chang Hwa and Formosa Plastics Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Chang Hwa and Formosa Plastics
The main advantage of trading using opposite Chang Hwa and Formosa Plastics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Chang Hwa 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.| Chang Hwa vs. Central Reinsurance Corp | Chang Hwa vs. Huaku Development Co | Chang Hwa vs. Fubon Financial Holding |
| 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.
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