Correlation Between Formosa Petrochemical and Simple Mart
Can any of the company-specific risk be diversified away by investing in both Formosa Petrochemical and Simple Mart 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 Simple Mart 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 Simple Mart Retail, you can compare the effects of market volatilities on Formosa Petrochemical and Simple Mart 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 Simple Mart. Check out your portfolio center. Please also check ongoing floating volatility patterns of Formosa Petrochemical and Simple Mart.
Diversification Opportunities for Formosa Petrochemical and Simple Mart
0.61 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Formosa and Simple is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Formosa Petrochemical Corp and Simple Mart Retail in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Simple Mart Retail 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 Simple Mart. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Simple Mart Retail has no effect on the direction of Formosa Petrochemical i.e., Formosa Petrochemical and Simple Mart go up and down completely randomly.
Pair Corralation between Formosa Petrochemical and Simple Mart
Assuming the 90 days trading horizon Formosa Petrochemical Corp is expected to under-perform the Simple Mart. In addition to that, Formosa Petrochemical is 2.04 times more volatile than Simple Mart Retail. It trades about -0.3 of its total potential returns per unit of risk. Simple Mart Retail is currently generating about 0.06 per unit of volatility. If you would invest 4,130 in Simple Mart Retail on August 26, 2024 and sell it today you would earn a total of 40.00 from holding Simple Mart Retail or generate 0.97% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Formosa Petrochemical Corp vs. Simple Mart Retail
Performance |
| Timeline |
| Formosa Petrochemical |
| Simple Mart Retail |
Formosa Petrochemical and Simple Mart Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Formosa Petrochemical and Simple Mart
The main advantage of trading using opposite Formosa Petrochemical and Simple Mart positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Formosa Petrochemical position performs unexpectedly, Simple Mart 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 Simple Mart will offset losses from the drop in Simple Mart's long position.The idea behind Formosa Petrochemical Corp and Simple Mart Retail 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.
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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 Global Correlations module to find global opportunities by holding instruments from different markets.
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