Correlation Between Formosa Petrochemical and International CSRC
Can any of the company-specific risk be diversified away by investing in both Formosa Petrochemical and International CSRC 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 International CSRC 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 International CSRC Investment, you can compare the effects of market volatilities on Formosa Petrochemical and International CSRC 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 International CSRC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Formosa Petrochemical and International CSRC.
Diversification Opportunities for Formosa Petrochemical and International CSRC
0.88 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Formosa and International is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Formosa Petrochemical Corp and International CSRC Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International CSRC 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 International CSRC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of International CSRC has no effect on the direction of Formosa Petrochemical i.e., Formosa Petrochemical and International CSRC go up and down completely randomly.
Pair Corralation between Formosa Petrochemical and International CSRC
Assuming the 90 days trading horizon Formosa Petrochemical Corp is expected to under-perform the International CSRC. In addition to that, Formosa Petrochemical is 1.45 times more volatile than International CSRC Investment. It trades about -0.24 of its total potential returns per unit of risk. International CSRC Investment is currently generating about -0.23 per unit of volatility. If you would invest 1,515 in International CSRC Investment on November 6, 2024 and sell it today you would lose (290.00) from holding International CSRC Investment or give up 19.14% 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. International CSRC Investment
Performance |
| Timeline |
| Formosa Petrochemical |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
| International CSRC |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
Formosa Petrochemical and International CSRC Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Formosa Petrochemical and International CSRC
The main advantage of trading using opposite Formosa Petrochemical and International CSRC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Formosa Petrochemical position performs unexpectedly, International CSRC 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 International CSRC will offset losses from the drop in International CSRC's long position.The idea behind Formosa Petrochemical Corp and International CSRC Investment pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.
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