Correlation Between Formosa Petrochemical and Formosa Chemicals
Can any of the company-specific risk be diversified away by investing in both Formosa Petrochemical and Formosa Chemicals 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 Chemicals 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 Chemicals Fibre, you can compare the effects of market volatilities on Formosa Petrochemical and Formosa Chemicals 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 Chemicals. Check out your portfolio center. Please also check ongoing floating volatility patterns of Formosa Petrochemical and Formosa Chemicals.
Diversification Opportunities for Formosa Petrochemical and Formosa Chemicals
0.94 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Formosa and Formosa is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Formosa Petrochemical Corp and Formosa Chemicals Fibre in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Formosa Chemicals Fibre 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 Chemicals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Formosa Chemicals Fibre has no effect on the direction of Formosa Petrochemical i.e., Formosa Petrochemical and Formosa Chemicals go up and down completely randomly.
Pair Corralation between Formosa Petrochemical and Formosa Chemicals
Assuming the 90 days trading horizon Formosa Petrochemical Corp is expected to under-perform the Formosa Chemicals. But the stock apears to be less risky and, when comparing its historical volatility, Formosa Petrochemical Corp is 1.05 times less risky than Formosa Chemicals. The stock trades about -0.2 of its potential returns per unit of risk. The Formosa Chemicals Fibre is currently generating about -0.14 of returns per unit of risk over similar time horizon. If you would invest 4,395 in Formosa Chemicals Fibre on August 28, 2024 and sell it today you would lose (775.00) from holding Formosa Chemicals Fibre or give up 17.63% 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. Formosa Chemicals Fibre
Performance |
| Timeline |
| Formosa Petrochemical |
| Formosa Chemicals Fibre |
Formosa Petrochemical and Formosa Chemicals Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Formosa Petrochemical and Formosa Chemicals
The main advantage of trading using opposite Formosa Petrochemical and Formosa Chemicals positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Formosa Petrochemical position performs unexpectedly, Formosa Chemicals 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 Chemicals will offset losses from the drop in Formosa Chemicals' long position.| Formosa Petrochemical vs. Healthconn Corp | Formosa Petrochemical vs. Phytohealth Corp | Formosa Petrochemical vs. Tait Marketing Distribution | Formosa Petrochemical vs. Louisa Professional Coffee |
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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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.
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