Correlation Between Formosa Petrochemical and Taiwan Styrene
Can any of the company-specific risk be diversified away by investing in both Formosa Petrochemical and Taiwan Styrene 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 Taiwan Styrene 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 Taiwan Styrene Monomer, you can compare the effects of market volatilities on Formosa Petrochemical and Taiwan Styrene 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 Taiwan Styrene. Check out your portfolio center. Please also check ongoing floating volatility patterns of Formosa Petrochemical and Taiwan Styrene.
Diversification Opportunities for Formosa Petrochemical and Taiwan Styrene
0.96 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Formosa and Taiwan is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Formosa Petrochemical Corp and Taiwan Styrene Monomer in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Taiwan Styrene Monomer 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 Taiwan Styrene. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Taiwan Styrene Monomer has no effect on the direction of Formosa Petrochemical i.e., Formosa Petrochemical and Taiwan Styrene go up and down completely randomly.
Pair Corralation between Formosa Petrochemical and Taiwan Styrene
Assuming the 90 days trading horizon Formosa Petrochemical Corp is expected to under-perform the Taiwan Styrene. But the stock apears to be less risky and, when comparing its historical volatility, Formosa Petrochemical Corp is 1.14 times less risky than Taiwan Styrene. The stock trades about -0.11 of its potential returns per unit of risk. The Taiwan Styrene Monomer is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest 1,375 in Taiwan Styrene Monomer on September 4, 2024 and sell it today you would lose (235.00) from holding Taiwan Styrene Monomer or give up 17.09% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Formosa Petrochemical Corp vs. Taiwan Styrene Monomer
Performance |
| Timeline |
| Formosa Petrochemical |
| Taiwan Styrene Monomer |
Formosa Petrochemical and Taiwan Styrene Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Formosa Petrochemical and Taiwan Styrene
The main advantage of trading using opposite Formosa Petrochemical and Taiwan Styrene positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Formosa Petrochemical position performs unexpectedly, Taiwan Styrene 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 Taiwan Styrene will offset losses from the drop in Taiwan Styrene's long position.| Formosa Petrochemical vs. Quintain Steel Co | Formosa Petrochemical vs. Tung Ho Steel | Formosa Petrochemical vs. Sunny Friend Environmental | Formosa Petrochemical vs. Iron Force Industrial |
| Taiwan Styrene vs. Grand Pacific Petrochemical | Taiwan Styrene vs. USI Corp | Taiwan Styrene vs. Asia Polymer Corp | Taiwan Styrene vs. China Petrochemical Development |
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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.
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