Correlation Between Southeast Cement and Formosa Chemicals

Can any of the company-specific risk be diversified away by investing in both Southeast Cement and Formosa Chemicals 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 Southeast Cement and Formosa Chemicals into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Southeast Cement Co and Formosa Chemicals Fibre, you can compare the effects of market volatilities on Southeast Cement and Formosa Chemicals 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 Southeast Cement with a short position of Formosa Chemicals. Check out your portfolio center. Please also check ongoing floating volatility patterns of Southeast Cement and Formosa Chemicals.

Diversification Opportunities for Southeast Cement and Formosa Chemicals

0.77

Correlation Coefficient

Southeast Cement  Formosa Chemicals

Poor diversification

The 3 months correlation between Southeast and Formosa is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Southeast Cement Co and Formosa Chemicals Fibre in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Formosa Chemicals Fibre and Southeast Cement 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 Southeast Cement Co are associated (or correlated) with Formosa Chemicals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Formosa Chemicals Fibre has no effect on the direction of Southeast Cement i.e., Southeast Cement and Formosa Chemicals go up and down completely randomly.

Pair Corralation between Southeast Cement and Formosa Chemicals

Assuming the 90 days trading horizon Southeast Cement Co is expected to generate 0.96 times more return on investment than Formosa Chemicals. However, Southeast Cement Co is 1.04 times less risky than Formosa Chemicals. It trades about -0.02 of its potential returns per unit of risk. Formosa Chemicals Fibre is currently generating about -0.22 per unit of risk. If you would invest  2,165  in Southeast Cement Co on September 29, 2024 and sell it today you would lose (120.00) from holding Southeast Cement Co or give up 5.54% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Southeast Cement Co  vs.  Formosa Chemicals Fibre

Southeast Cement

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Southeast Cement Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Formosa Chemicals Fibre

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Formosa Chemicals Fibre has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in January 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Pair Trading with Southeast Cement and Formosa Chemicals

The main advantage of trading using opposite Southeast Cement and Formosa Chemicals positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Southeast Cement position performs unexpectedly, Formosa Chemicals 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 Chemicals will offset losses from the drop in Formosa Chemicals' long position.

The idea behind Southeast Cement Co and Formosa Chemicals Fibre 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.

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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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.