Correlation Between Formosa Plastics and Yieh Phui

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

By analyzing existing cross correlation between Formosa Plastics Corp and Yieh Phui Enterprise, you can compare the effects of market volatilities on Formosa Plastics and Yieh Phui 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 Plastics with a short position of Yieh Phui. Check out your portfolio center. Please also check ongoing floating volatility patterns of Formosa Plastics and Yieh Phui.

Diversification Opportunities for Formosa Plastics and Yieh Phui

0.61

Correlation Coefficient

Formosa Plastics  Yieh Phui

Poor diversification

The 3 months correlation between Formosa and Yieh is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Formosa Plastics Corp and Yieh Phui Enterprise in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Yieh Phui Enterprise and Formosa Plastics 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 Plastics Corp are associated (or correlated) with Yieh Phui. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Yieh Phui Enterprise has no effect on the direction of Formosa Plastics i.e., Formosa Plastics and Yieh Phui go up and down completely randomly.

Pair Corralation between Formosa Plastics and Yieh Phui

Assuming the 90 days trading horizon Formosa Plastics Corp is expected to under-perform the Yieh Phui. But the stock apears to be less risky and, when comparing its historical volatility, Formosa Plastics Corp is 1.08 times less risky than Yieh Phui. The stock trades about -0.13 of its potential returns per unit of risk. The Yieh Phui Enterprise is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  1,573  in Yieh Phui Enterprise on September 23, 2024 and sell it today you would lose (123.00) from holding Yieh Phui Enterprise or give up 7.82% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.79%
Values	Daily Returns

Formosa Plastics Corp  vs.  Yieh Phui Enterprise

Formosa Plastics Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Formosa Plastics Corp 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.

Yieh Phui Enterprise

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Yieh Phui Enterprise has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Yieh Phui is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Formosa Plastics and Yieh Phui

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

The idea behind Formosa Plastics Corp and Yieh Phui Enterprise 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.

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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.