Correlation Between Formosa Petrochemical and Nan Ya
Can any of the company-specific risk be diversified away by investing in both Formosa Petrochemical and Nan Ya 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 Nan Ya 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 Nan Ya Plastics, you can compare the effects of market volatilities on Formosa Petrochemical and Nan Ya 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 Nan Ya. Check out your portfolio center. Please also check ongoing floating volatility patterns of Formosa Petrochemical and Nan Ya.
Diversification Opportunities for Formosa Petrochemical and Nan Ya
0.79 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Formosa and Nan is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Formosa Petrochemical Corp and Nan Ya Plastics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nan Ya Plastics 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 Nan Ya. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nan Ya Plastics has no effect on the direction of Formosa Petrochemical i.e., Formosa Petrochemical and Nan Ya go up and down completely randomly.
Pair Corralation between Formosa Petrochemical and Nan Ya
Assuming the 90 days trading horizon Formosa Petrochemical Corp is expected to under-perform the Nan Ya. In addition to that, Formosa Petrochemical is 1.01 times more volatile than Nan Ya Plastics. It trades about -0.2 of its total potential returns per unit of risk. Nan Ya Plastics is currently generating about -0.1 per unit of volatility. If you would invest 4,585 in Nan Ya Plastics on August 28, 2024 and sell it today you would lose (550.00) from holding Nan Ya Plastics or give up 12.0% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Formosa Petrochemical Corp vs. Nan Ya Plastics
Performance |
| Timeline |
| Formosa Petrochemical |
| Nan Ya Plastics |
Formosa Petrochemical and Nan Ya Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Formosa Petrochemical and Nan Ya
The main advantage of trading using opposite Formosa Petrochemical and Nan Ya positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Formosa Petrochemical position performs unexpectedly, Nan Ya 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 Nan Ya will offset losses from the drop in Nan Ya's long position.| Formosa Petrochemical vs. Healthconn Corp | Formosa Petrochemical vs. Phytohealth Corp | Formosa Petrochemical vs. Tait Marketing Distribution | Formosa Petrochemical vs. Louisa Professional Coffee |
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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
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