Correlation Between Mega Financial and Formosa Plastics
Can any of the company-specific risk be diversified away by investing in both Mega Financial 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 Mega Financial and Formosa Plastics into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Mega Financial Holding and Formosa Plastics Corp, you can compare the effects of market volatilities on Mega Financial 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 Mega Financial with a short position of Formosa Plastics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Mega Financial and Formosa Plastics.
Diversification Opportunities for Mega Financial and Formosa Plastics
0.05 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Mega and Formosa is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding Mega Financial Holding 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 Mega Financial 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 Mega Financial Holding 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 Mega Financial i.e., Mega Financial and Formosa Plastics go up and down completely randomly.
Pair Corralation between Mega Financial and Formosa Plastics
Assuming the 90 days trading horizon Mega Financial Holding is expected to generate 0.37 times more return on investment than Formosa Plastics. However, Mega Financial Holding is 2.73 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 -0.11 per unit of risk. If you would invest 3,930 in Mega Financial Holding on August 28, 2024 and sell it today you would earn a total of 85.00 from holding Mega Financial Holding or generate 2.16% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Mega Financial Holding vs. Formosa Plastics Corp
Performance |
| Timeline |
| Mega Financial Holding |
| Formosa Plastics Corp |
Mega Financial and Formosa Plastics Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Mega Financial and Formosa Plastics
The main advantage of trading using opposite Mega Financial and Formosa Plastics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Mega Financial 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.| Mega Financial vs. CTBC Financial Holding | Mega Financial vs. Fubon Financial Holding | Mega Financial vs. First Financial Holding | Mega Financial vs. Cathay Financial Holding |
| Formosa Plastics vs. Cheng Shin Rubber | Formosa Plastics vs. China Steel Chemical | Formosa Plastics vs. Yulon Motor Co |
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 Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..
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