Correlation Between Formosa Petrochemical and Aerospace Industrial
Can any of the company-specific risk be diversified away by investing in both Formosa Petrochemical and Aerospace Industrial 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 Aerospace Industrial 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 Aerospace Industrial Development, you can compare the effects of market volatilities on Formosa Petrochemical and Aerospace Industrial 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 Aerospace Industrial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Formosa Petrochemical and Aerospace Industrial.
Diversification Opportunities for Formosa Petrochemical and Aerospace Industrial
0.87 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Formosa and Aerospace is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Formosa Petrochemical Corp and Aerospace Industrial Developme in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aerospace Industrial 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 Aerospace Industrial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aerospace Industrial has no effect on the direction of Formosa Petrochemical i.e., Formosa Petrochemical and Aerospace Industrial go up and down completely randomly.
Pair Corralation between Formosa Petrochemical and Aerospace Industrial
Assuming the 90 days trading horizon Formosa Petrochemical Corp is expected to under-perform the Aerospace Industrial. In addition to that, Formosa Petrochemical is 1.19 times more volatile than Aerospace Industrial Development. It trades about -0.44 of its total potential returns per unit of risk. Aerospace Industrial Development is currently generating about -0.13 per unit of volatility. If you would invest 4,490 in Aerospace Industrial Development on September 2, 2024 and sell it today you would lose (185.00) from holding Aerospace Industrial Development or give up 4.12% 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. Aerospace Industrial Developme
Performance |
| Timeline |
| Formosa Petrochemical |
| Aerospace Industrial |
Formosa Petrochemical and Aerospace Industrial Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Formosa Petrochemical and Aerospace Industrial
The main advantage of trading using opposite Formosa Petrochemical and Aerospace Industrial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Formosa Petrochemical position performs unexpectedly, Aerospace Industrial 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 Aerospace Industrial will offset losses from the drop in Aerospace Industrial's long position.| Formosa Petrochemical vs. WIN Semiconductors | Formosa Petrochemical vs. Winstek Semiconductor Co | Formosa Petrochemical vs. uPI Semiconductor Corp | Formosa Petrochemical vs. Niko Semiconductor Co |
| Aerospace Industrial vs. CSBC Corp Taiwan | Aerospace Industrial vs. Eva Airways Corp | Aerospace Industrial vs. Taiwan High Speed | Aerospace Industrial vs. China Airlines |
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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.
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