Correlation Between Formosa Petrochemical and Ruentex Industries
Can any of the company-specific risk be diversified away by investing in both Formosa Petrochemical and Ruentex Industries 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 Ruentex Industries 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 Ruentex Industries, you can compare the effects of market volatilities on Formosa Petrochemical and Ruentex Industries 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 Ruentex Industries. Check out your portfolio center. Please also check ongoing floating volatility patterns of Formosa Petrochemical and Ruentex Industries.
Diversification Opportunities for Formosa Petrochemical and Ruentex Industries
0.75 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Formosa and Ruentex is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Formosa Petrochemical Corp and Ruentex Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ruentex Industries 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 Ruentex Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ruentex Industries has no effect on the direction of Formosa Petrochemical i.e., Formosa Petrochemical and Ruentex Industries go up and down completely randomly.
Pair Corralation between Formosa Petrochemical and Ruentex Industries
Assuming the 90 days trading horizon Formosa Petrochemical Corp is expected to under-perform the Ruentex Industries. In addition to that, Formosa Petrochemical is 2.11 times more volatile than Ruentex Industries. It trades about -0.18 of its total potential returns per unit of risk. Ruentex Industries is currently generating about -0.32 per unit of volatility. If you would invest 8,040 in Ruentex Industries on October 26, 2024 and sell it today you would lose (1,120) from holding Ruentex Industries or give up 13.93% 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. Ruentex Industries
Performance |
| Timeline |
| Formosa Petrochemical |
| Ruentex Industries |
Formosa Petrochemical and Ruentex Industries Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Formosa Petrochemical and Ruentex Industries
The main advantage of trading using opposite Formosa Petrochemical and Ruentex Industries positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Formosa Petrochemical position performs unexpectedly, Ruentex Industries 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 Ruentex Industries will offset losses from the drop in Ruentex Industries' long position.| Formosa Petrochemical vs. WIN Semiconductors | Formosa Petrochemical vs. Advanced Wireless Semiconductor | Formosa Petrochemical vs. C Media Electronics | Formosa Petrochemical vs. Asmedia Technology |
| Ruentex Industries vs. Ruentex Development Co | Ruentex Industries vs. Fubon Financial Holding | Ruentex Industries vs. Cathay Financial Holding | Ruentex Industries vs. Pou Chen 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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