Correlation Between Ko Ja and Formosan Union
Can any of the company-specific risk be diversified away by investing in both Ko Ja and Formosan Union 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 Ko Ja and Formosan Union into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ko Ja Cayman and Formosan Union Chemical, you can compare the effects of market volatilities on Ko Ja and Formosan Union 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 Ko Ja with a short position of Formosan Union. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ko Ja and Formosan Union.
Diversification Opportunities for Ko Ja and Formosan Union
0.92 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between 5215 and Formosan is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Ko Ja Cayman and Formosan Union Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Formosan Union Chemical and Ko Ja 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 Ko Ja Cayman are associated (or correlated) with Formosan Union. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Formosan Union Chemical has no effect on the direction of Ko Ja i.e., Ko Ja and Formosan Union go up and down completely randomly.
Pair Corralation between Ko Ja and Formosan Union
Assuming the 90 days trading horizon Ko Ja Cayman is expected to generate 1.47 times more return on investment than Formosan Union. However, Ko Ja is 1.47 times more volatile than Formosan Union Chemical. It trades about 0.0 of its potential returns per unit of risk. Formosan Union Chemical is currently generating about -0.01 per unit of risk. If you would invest 4,575 in Ko Ja Cayman on October 21, 2024 and sell it today you would lose (360.00) from holding Ko Ja Cayman or give up 7.87% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Ko Ja Cayman vs. Formosan Union Chemical
Performance |
| Timeline |
| Ko Ja Cayman |
| Formosan Union Chemical |
Ko Ja and Formosan Union Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ko Ja and Formosan Union
The main advantage of trading using opposite Ko Ja and Formosan Union positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ko Ja position performs unexpectedly, Formosan Union 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 Formosan Union will offset losses from the drop in Formosan Union's long position.The idea behind Ko Ja Cayman and Formosan Union Chemical pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.| Formosan Union vs. Oriental Union Chemical | Formosan Union vs. Everlight Chemical Industrial | Formosan Union vs. China Man Made Fiber | Formosan Union vs. Ho Tung Chemical |
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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.
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