Correlation Between Formosa Petrochemical and MetaTech
Can any of the company-specific risk be diversified away by investing in both Formosa Petrochemical and MetaTech 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 MetaTech 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 MetaTech AP, you can compare the effects of market volatilities on Formosa Petrochemical and MetaTech 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 MetaTech. Check out your portfolio center. Please also check ongoing floating volatility patterns of Formosa Petrochemical and MetaTech.
Diversification Opportunities for Formosa Petrochemical and MetaTech
-0.44 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Formosa and MetaTech is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding Formosa Petrochemical Corp and MetaTech AP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MetaTech AP 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 MetaTech. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MetaTech AP has no effect on the direction of Formosa Petrochemical i.e., Formosa Petrochemical and MetaTech go up and down completely randomly.
Pair Corralation between Formosa Petrochemical and MetaTech
Assuming the 90 days trading horizon Formosa Petrochemical Corp is expected to under-perform the MetaTech. But the stock apears to be less risky and, when comparing its historical volatility, Formosa Petrochemical Corp is 1.37 times less risky than MetaTech. The stock trades about -0.32 of its potential returns per unit of risk. The MetaTech AP is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest 4,730 in MetaTech AP on August 30, 2024 and sell it today you would earn a total of 180.00 from holding MetaTech AP or generate 3.81% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Formosa Petrochemical Corp vs. MetaTech AP
Performance |
| Timeline |
| Formosa Petrochemical |
| MetaTech AP |
Formosa Petrochemical and MetaTech Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Formosa Petrochemical and MetaTech
The main advantage of trading using opposite Formosa Petrochemical and MetaTech positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Formosa Petrochemical position performs unexpectedly, MetaTech 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 MetaTech will offset losses from the drop in MetaTech's long position.The idea behind Formosa Petrochemical Corp and MetaTech AP 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.
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