Correlation Between Taiwan Speciality and Formosa Chemicals
Can any of the company-specific risk be diversified away by investing in both Taiwan Speciality and Formosa Chemicals 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 Taiwan Speciality and Formosa Chemicals into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Taiwan Speciality Chemicals and Formosa Chemicals Fibre, you can compare the effects of market volatilities on Taiwan Speciality and Formosa Chemicals 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 Taiwan Speciality with a short position of Formosa Chemicals. Check out your portfolio center. Please also check ongoing floating volatility patterns of Taiwan Speciality and Formosa Chemicals.
Diversification Opportunities for Taiwan Speciality and Formosa Chemicals
0.47 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Taiwan and Formosa is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Taiwan Speciality Chemicals and Formosa Chemicals Fibre in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Formosa Chemicals Fibre and Taiwan Speciality 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 Taiwan Speciality Chemicals are associated (or correlated) with Formosa Chemicals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Formosa Chemicals Fibre has no effect on the direction of Taiwan Speciality i.e., Taiwan Speciality and Formosa Chemicals go up and down completely randomly.
Pair Corralation between Taiwan Speciality and Formosa Chemicals
Assuming the 90 days trading horizon Taiwan Speciality Chemicals is expected to generate 0.79 times more return on investment than Formosa Chemicals. However, Taiwan Speciality Chemicals is 1.26 times less risky than Formosa Chemicals. It trades about -0.19 of its potential returns per unit of risk. Formosa Chemicals Fibre is currently generating about -0.32 per unit of risk. If you would invest 16,900 in Taiwan Speciality Chemicals on September 4, 2024 and sell it today you would lose (1,000.00) from holding Taiwan Speciality Chemicals or give up 5.92% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Taiwan Speciality Chemicals vs. Formosa Chemicals Fibre
Performance |
| Timeline |
| Taiwan Speciality |
| Formosa Chemicals Fibre |
Taiwan Speciality and Formosa Chemicals Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Taiwan Speciality and Formosa Chemicals
The main advantage of trading using opposite Taiwan Speciality and Formosa Chemicals positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Taiwan Speciality position performs unexpectedly, Formosa Chemicals 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 Chemicals will offset losses from the drop in Formosa Chemicals' long position.| Taiwan Speciality vs. Newretail Co | Taiwan Speciality vs. Wei Chuan Foods | Taiwan Speciality vs. Tehmag Foods | Taiwan Speciality vs. Energenesis Biomedical Co |
| Formosa Chemicals vs. Formosa Plastics Corp | Formosa Chemicals vs. Nan Ya Plastics | Formosa Chemicals vs. Formosa Petrochemical Corp | Formosa Chemicals vs. Cathay Financial 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .
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