Correlation Between Formosa Petrochemical and Ocean Plastics
Can any of the company-specific risk be diversified away by investing in both Formosa Petrochemical and Ocean 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 Ocean 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 Ocean Plastics Co, you can compare the effects of market volatilities on Formosa Petrochemical and Ocean 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 Ocean Plastics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Formosa Petrochemical and Ocean Plastics.
Diversification Opportunities for Formosa Petrochemical and Ocean Plastics
0.81 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Formosa and Ocean is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Formosa Petrochemical Corp and Ocean Plastics Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ocean 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 Ocean Plastics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ocean Plastics has no effect on the direction of Formosa Petrochemical i.e., Formosa Petrochemical and Ocean Plastics go up and down completely randomly.
Pair Corralation between Formosa Petrochemical and Ocean Plastics
Assuming the 90 days trading horizon Formosa Petrochemical Corp is expected to under-perform the Ocean Plastics. But the stock apears to be less risky and, when comparing its historical volatility, Formosa Petrochemical Corp is 1.01 times less risky than Ocean Plastics. The stock trades about -0.22 of its potential returns per unit of risk. The Ocean Plastics Co is currently generating about -0.07 of returns per unit of risk over similar time horizon. If you would invest 3,905 in Ocean Plastics Co on September 3, 2024 and sell it today you would lose (610.00) from holding Ocean Plastics Co or give up 15.62% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Formosa Petrochemical Corp vs. Ocean Plastics Co
Performance |
| Timeline |
| Formosa Petrochemical |
| Ocean Plastics |
Formosa Petrochemical and Ocean Plastics Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Formosa Petrochemical and Ocean Plastics
The main advantage of trading using opposite Formosa Petrochemical and Ocean Plastics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Formosa Petrochemical position performs unexpectedly, Ocean 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 Ocean Plastics will offset losses from the drop in Ocean Plastics' long position.| Formosa Petrochemical vs. Taishin Financial Holding | Formosa Petrochemical vs. Oceanic Beverages Co | Formosa Petrochemical vs. Union Bank of | Formosa Petrochemical vs. Professional Computer Technology |
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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.
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