Correlation Between Formosa Petrochemical and United Microelectronics
Can any of the company-specific risk be diversified away by investing in both Formosa Petrochemical and United Microelectronics 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 United Microelectronics 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 United Microelectronics, you can compare the effects of market volatilities on Formosa Petrochemical and United Microelectronics 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 United Microelectronics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Formosa Petrochemical and United Microelectronics.
Diversification Opportunities for Formosa Petrochemical and United Microelectronics
0.83 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Formosa and United is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Formosa Petrochemical Corp and United Microelectronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United Microelectronics 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 United Microelectronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of United Microelectronics has no effect on the direction of Formosa Petrochemical i.e., Formosa Petrochemical and United Microelectronics go up and down completely randomly.
Pair Corralation between Formosa Petrochemical and United Microelectronics
Assuming the 90 days trading horizon Formosa Petrochemical Corp is expected to under-perform the United Microelectronics. In addition to that, Formosa Petrochemical is 1.26 times more volatile than United Microelectronics. It trades about -0.33 of its total potential returns per unit of risk. United Microelectronics is currently generating about -0.3 per unit of volatility. If you would invest 4,840 in United Microelectronics on August 30, 2024 and sell it today you would lose (400.00) from holding United Microelectronics or give up 8.26% 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. United Microelectronics
Performance |
| Timeline |
| Formosa Petrochemical |
| United Microelectronics |
Formosa Petrochemical and United Microelectronics Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Formosa Petrochemical and United Microelectronics
The main advantage of trading using opposite Formosa Petrochemical and United Microelectronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Formosa Petrochemical position performs unexpectedly, United Microelectronics 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 United Microelectronics will offset losses from the drop in United Microelectronics' long position.| Formosa Petrochemical vs. Hunya Foods Co | Formosa Petrochemical vs. Shan Loong Transportation Co | Formosa Petrochemical vs. Ma Kuang Healthcare | Formosa Petrochemical vs. Lian Hwa Foods |
| United Microelectronics vs. Sitronix Technology Corp | United Microelectronics vs. Elan Microelectronics Corp |
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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.
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