Correlation Between Dow Jones and Formosan Union
Can any of the company-specific risk be diversified away by investing in both Dow Jones and Formosan Union 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 Dow Jones and Formosan Union into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Dow Jones Industrial and Formosan Union Chemical, you can compare the effects of market volatilities on Dow Jones and Formosan Union 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 Dow Jones with a short position of Formosan Union. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Formosan Union.
Diversification Opportunities for Dow Jones and Formosan Union
-0.01 | Correlation Coefficient |
Good diversification
The 3 months correlation between Dow and Formosan is -0.01. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Formosan Union Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Formosan Union Chemical and Dow Jones 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 Dow Jones Industrial are associated (or correlated) with Formosan Union. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Formosan Union Chemical has no effect on the direction of Dow Jones i.e., Dow Jones and Formosan Union go up and down completely randomly.
Pair Corralation between Dow Jones and Formosan Union
Assuming the 90 days trading horizon Dow Jones Industrial is expected to generate 0.48 times more return on investment than Formosan Union. However, Dow Jones Industrial is 2.08 times less risky than Formosan Union. It trades about 0.08 of its potential returns per unit of risk. Formosan Union Chemical is currently generating about -0.01 per unit of risk. If you would invest 3,371,709 in Dow Jones Industrial on October 21, 2024 and sell it today you would earn a total of 977,074 from holding Dow Jones Industrial or generate 28.98% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 98.39% |
| Values | Daily Returns |
Dow Jones Industrial vs. Formosan Union Chemical
Performance |
| Timeline |
Dow Jones and Formosan Union Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
Formosan Union Chemical
Pair trading matchups for Formosan Union
Pair Trading with Dow Jones and Formosan Union
The main advantage of trading using opposite Dow Jones and Formosan Union positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, Formosan Union 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 Formosan Union will offset losses from the drop in Formosan Union's long position.| Dow Jones vs. Ainsworth Game Technology | Dow Jones vs. The Coca Cola | Dow Jones vs. Galaxy Gaming | Dow Jones vs. Playtika Holding Corp |
| Formosan Union vs. Oriental Union Chemical | Formosan Union vs. Everlight Chemical Industrial | Formosan Union vs. China Man Made Fiber | Formosan Union vs. Ho Tung Chemical |
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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