Correlation Between Formosa Petrochemical and Formosa Plastics
Can any of the company-specific risk be diversified away by investing in both Formosa Petrochemical 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 Formosa Petrochemical and Formosa Plastics into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Formosa Petrochemical Corp and Formosa Plastics Corp, you can compare the effects of market volatilities on Formosa Petrochemical 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 Formosa Petrochemical with a short position of Formosa Plastics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Formosa Petrochemical and Formosa Plastics.
Diversification Opportunities for Formosa Petrochemical and Formosa Plastics
0.97 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Formosa and Formosa is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Formosa Petrochemical Corp 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 Formosa Petrochemical 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 Petrochemical Corp 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 Formosa Petrochemical i.e., Formosa Petrochemical and Formosa Plastics go up and down completely randomly.
Pair Corralation between Formosa Petrochemical and Formosa Plastics
Assuming the 90 days trading horizon Formosa Petrochemical Corp is expected to generate 0.83 times more return on investment than Formosa Plastics. However, Formosa Petrochemical Corp is 1.2 times less risky than Formosa Plastics. It trades about 0.19 of its potential returns per unit of risk. Formosa Plastics Corp is currently generating about 0.08 per unit of risk. If you would invest 3,380 in Formosa Petrochemical Corp on November 2, 2024 and sell it today you would earn a total of 285.00 from holding Formosa Petrochemical Corp or generate 8.43% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Formosa Petrochemical Corp vs. Formosa Plastics Corp
Performance |
| Timeline |
| Formosa Petrochemical |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
| Formosa Plastics Corp |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
Formosa Petrochemical and Formosa Plastics Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Formosa Petrochemical and Formosa Plastics
The main advantage of trading using opposite Formosa Petrochemical and Formosa Plastics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Formosa Petrochemical 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.The idea behind Formosa Petrochemical Corp and Formosa Plastics Corp 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.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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.
Other Complementary Tools
| My Watchlist Analysis Analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like | |
| Odds Of Bankruptcy Get analysis of equity chance of financial distress in the next 2 years | |
| Headlines Timeline Stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity | |
| Stocks Directory Find actively traded stocks across global markets | |
| Commodity Directory Find actively traded commodities issued by global exchanges |