Correlation Between Sunny Friend and Formosa Petrochemical
Can any of the company-specific risk be diversified away by investing in both Sunny Friend and Formosa Petrochemical 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 Sunny Friend and Formosa Petrochemical into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Sunny Friend Environmental and Formosa Petrochemical Corp, you can compare the effects of market volatilities on Sunny Friend and Formosa Petrochemical 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 Sunny Friend with a short position of Formosa Petrochemical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sunny Friend and Formosa Petrochemical.
Diversification Opportunities for Sunny Friend and Formosa Petrochemical
-0.01 | Correlation Coefficient |
Good diversification
The 3 months correlation between Sunny and Formosa is -0.01. Overlapping area represents the amount of risk that can be diversified away by holding Sunny Friend Environmental and Formosa Petrochemical Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Formosa Petrochemical and Sunny Friend 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 Sunny Friend Environmental are associated (or correlated) with Formosa Petrochemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Formosa Petrochemical has no effect on the direction of Sunny Friend i.e., Sunny Friend and Formosa Petrochemical go up and down completely randomly.
Pair Corralation between Sunny Friend and Formosa Petrochemical
Assuming the 90 days trading horizon Sunny Friend Environmental is expected to generate 1.14 times more return on investment than Formosa Petrochemical. However, Sunny Friend is 1.14 times more volatile than Formosa Petrochemical Corp. It trades about -0.13 of its potential returns per unit of risk. Formosa Petrochemical Corp is currently generating about -0.45 per unit of risk. If you would invest 9,620 in Sunny Friend Environmental on September 4, 2024 and sell it today you would lose (560.00) from holding Sunny Friend Environmental or give up 5.82% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Sunny Friend Environmental vs. Formosa Petrochemical Corp
Performance |
| Timeline |
| Sunny Friend Environ |
| Formosa Petrochemical |
Sunny Friend and Formosa Petrochemical Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Sunny Friend and Formosa Petrochemical
The main advantage of trading using opposite Sunny Friend and Formosa Petrochemical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sunny Friend position performs unexpectedly, Formosa Petrochemical 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 Formosa Petrochemical will offset losses from the drop in Formosa Petrochemical's long position.| Sunny Friend vs. Cleanaway Co | Sunny Friend vs. Taiwan Secom Co | Sunny Friend vs. TTET Union Corp | Sunny Friend vs. Tehmag Foods |
| 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.
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