Correlation Between Formosa Petrochemical and Longwell
Can any of the company-specific risk be diversified away by investing in both Formosa Petrochemical and Longwell 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 Longwell 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 Longwell Co, you can compare the effects of market volatilities on Formosa Petrochemical and Longwell 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 Longwell. Check out your portfolio center. Please also check ongoing floating volatility patterns of Formosa Petrochemical and Longwell.
Diversification Opportunities for Formosa Petrochemical and Longwell
0.82 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Formosa and Longwell is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Formosa Petrochemical Corp and Longwell Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Longwell 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 Longwell. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Longwell has no effect on the direction of Formosa Petrochemical i.e., Formosa Petrochemical and Longwell go up and down completely randomly.
Pair Corralation between Formosa Petrochemical and Longwell
Assuming the 90 days trading horizon Formosa Petrochemical Corp is expected to under-perform the Longwell. But the stock apears to be less risky and, when comparing its historical volatility, Formosa Petrochemical Corp is 1.45 times less risky than Longwell. The stock trades about -0.23 of its potential returns per unit of risk. The Longwell Co is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest 7,399 in Longwell Co on September 3, 2024 and sell it today you would lose (189.00) from holding Longwell Co or give up 2.55% 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. Longwell Co
Performance |
| Timeline |
| Formosa Petrochemical |
| Longwell |
Formosa Petrochemical and Longwell Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Formosa Petrochemical and Longwell
The main advantage of trading using opposite Formosa Petrochemical and Longwell positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Formosa Petrochemical position performs unexpectedly, Longwell 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 Longwell will offset losses from the drop in Longwell's long position.| Formosa Petrochemical vs. Taishin Financial Holding | Formosa Petrochemical vs. Oceanic Beverages Co | Formosa Petrochemical vs. Union Bank of | Formosa Petrochemical vs. Professional Computer Technology |
| Longwell vs. Acbel Polytech | Longwell vs. Primax Electronics | Longwell vs. Flexium Interconnect | Longwell vs. Career Technology MFG |
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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.
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