Correlation Between Formosa Petrochemical and Everlight Chemical
Can any of the company-specific risk be diversified away by investing in both Formosa Petrochemical and Everlight Chemical 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 Everlight Chemical 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 Everlight Chemical Industrial, you can compare the effects of market volatilities on Formosa Petrochemical and Everlight Chemical 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 Everlight Chemical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Formosa Petrochemical and Everlight Chemical.
Diversification Opportunities for Formosa Petrochemical and Everlight Chemical
0.83 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Formosa and Everlight is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Formosa Petrochemical Corp and Everlight Chemical Industrial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Everlight Chemical 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 Everlight Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Everlight Chemical has no effect on the direction of Formosa Petrochemical i.e., Formosa Petrochemical and Everlight Chemical go up and down completely randomly.
Pair Corralation between Formosa Petrochemical and Everlight Chemical
Assuming the 90 days trading horizon Formosa Petrochemical Corp is expected to generate 1.28 times more return on investment than Everlight Chemical. However, Formosa Petrochemical is 1.28 times more volatile than Everlight Chemical Industrial. It trades about 0.29 of its potential returns per unit of risk. Everlight Chemical Industrial is currently generating about 0.08 per unit of risk. If you would invest 3,435 in Formosa Petrochemical Corp on December 1, 2024 and sell it today you would earn a total of 435.00 from holding Formosa Petrochemical Corp or generate 12.66% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Formosa Petrochemical Corp vs. Everlight Chemical Industrial
Performance |
| Timeline |
| Formosa Petrochemical |
| Everlight Chemical |
Formosa Petrochemical and Everlight Chemical Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Formosa Petrochemical and Everlight Chemical
The main advantage of trading using opposite Formosa Petrochemical and Everlight Chemical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Formosa Petrochemical position performs unexpectedly, Everlight Chemical 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 Everlight Chemical will offset losses from the drop in Everlight Chemical's long position.| Formosa Petrochemical vs. Pan Asia Chemical | Formosa Petrochemical vs. Johnson Chemical Pharmaceutical | Formosa Petrochemical vs. CTBC Financial Holding | Formosa Petrochemical vs. Mercuries Life Insurance |
| Everlight Chemical vs. Oriental Union Chemical | Everlight Chemical vs. Ho Tung Chemical | Everlight Chemical vs. China Man Made Fiber | Everlight Chemical vs. Sunko Ink Co |
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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.
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