Correlation Between Formosa Petrochemical and First Copper
Can any of the company-specific risk be diversified away by investing in both Formosa Petrochemical and First Copper 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 First Copper 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 First Copper Technology, you can compare the effects of market volatilities on Formosa Petrochemical and First Copper 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 First Copper. Check out your portfolio center. Please also check ongoing floating volatility patterns of Formosa Petrochemical and First Copper.
Diversification Opportunities for Formosa Petrochemical and First Copper
0.64 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Formosa and First is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Formosa Petrochemical Corp and First Copper Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Copper Technology 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 First Copper. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Copper Technology has no effect on the direction of Formosa Petrochemical i.e., Formosa Petrochemical and First Copper go up and down completely randomly.
Pair Corralation between Formosa Petrochemical and First Copper
Assuming the 90 days trading horizon Formosa Petrochemical Corp is expected to under-perform the First Copper. In addition to that, Formosa Petrochemical is 1.09 times more volatile than First Copper Technology. It trades about -0.45 of its total potential returns per unit of risk. First Copper Technology is currently generating about -0.15 per unit of volatility. If you would invest 4,100 in First Copper Technology on September 4, 2024 and sell it today you would lose (210.00) from holding First Copper Technology or give up 5.12% 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. First Copper Technology
Performance |
| Timeline |
| Formosa Petrochemical |
| First Copper Technology |
Formosa Petrochemical and First Copper Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Formosa Petrochemical and First Copper
The main advantage of trading using opposite Formosa Petrochemical and First Copper positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Formosa Petrochemical position performs unexpectedly, First Copper 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 First Copper will offset losses from the drop in First Copper'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 |
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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.
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