Correlation Between Century Iron and Formosa Petrochemical
Can any of the company-specific risk be diversified away by investing in both Century Iron 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 Century Iron and Formosa Petrochemical into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Century Iron And and Formosa Petrochemical Corp, you can compare the effects of market volatilities on Century Iron 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 Century Iron with a short position of Formosa Petrochemical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Century Iron and Formosa Petrochemical.
Diversification Opportunities for Century Iron and Formosa Petrochemical
0.86 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Century and Formosa is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Century Iron And and Formosa Petrochemical Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Formosa Petrochemical and Century Iron 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 Century Iron And 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 Century Iron i.e., Century Iron and Formosa Petrochemical go up and down completely randomly.
Pair Corralation between Century Iron and Formosa Petrochemical
Assuming the 90 days trading horizon Century Iron And is expected to generate 1.63 times more return on investment than Formosa Petrochemical. However, Century Iron is 1.63 times more volatile than Formosa Petrochemical Corp. It trades about -0.26 of its potential returns per unit of risk. Formosa Petrochemical Corp is currently generating about -0.51 per unit of risk. If you would invest 21,100 in Century Iron And on September 4, 2024 and sell it today you would lose (3,100) from holding Century Iron And or give up 14.69% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Century Iron And vs. Formosa Petrochemical Corp
Performance |
| Timeline |
| Century Iron And |
| Formosa Petrochemical |
Century Iron and Formosa Petrochemical Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Century Iron and Formosa Petrochemical
The main advantage of trading using opposite Century Iron and Formosa Petrochemical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Century Iron 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.The idea behind Century Iron And and Formosa Petrochemical Corp 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.| 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.
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