Correlation Between Formosa Petrochemical and Century Iron
Can any of the company-specific risk be diversified away by investing in both Formosa Petrochemical and Century Iron 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 Century Iron 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 Century Iron And, you can compare the effects of market volatilities on Formosa Petrochemical and Century Iron 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 Century Iron. Check out your portfolio center. Please also check ongoing floating volatility patterns of Formosa Petrochemical and Century Iron.
Diversification Opportunities for Formosa Petrochemical and Century Iron
0.86 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Formosa and Century is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Formosa Petrochemical Corp and Century Iron And in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Century Iron And 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 Century Iron. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Century Iron And has no effect on the direction of Formosa Petrochemical i.e., Formosa Petrochemical and Century Iron go up and down completely randomly.
Pair Corralation between Formosa Petrochemical and Century Iron
Assuming the 90 days trading horizon Formosa Petrochemical Corp is expected to under-perform the Century Iron. But the stock apears to be less risky and, when comparing its historical volatility, Formosa Petrochemical Corp is 2.35 times less risky than Century Iron. The stock trades about -0.18 of its potential returns per unit of risk. The Century Iron And is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest 17,900 in Century Iron And on September 4, 2024 and sell it today you would earn a total of 100.00 from holding Century Iron And or generate 0.56% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Formosa Petrochemical Corp vs. Century Iron And
Performance |
| Timeline |
| Formosa Petrochemical |
| Century Iron And |
Formosa Petrochemical and Century Iron Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Formosa Petrochemical and Century Iron
The main advantage of trading using opposite Formosa Petrochemical and Century Iron positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Formosa Petrochemical position performs unexpectedly, Century Iron 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 Century Iron will offset losses from the drop in Century Iron's long position.| Formosa Petrochemical vs. Quintain Steel Co | Formosa Petrochemical vs. Tung Ho Steel | Formosa Petrochemical vs. Sunny Friend Environmental | Formosa Petrochemical vs. Iron Force Industrial |
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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.
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