Correlation Between Formosa Plastics and ReaLy Development

Can any of the company-specific risk be diversified away by investing in both Formosa Plastics and ReaLy Development 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 ReaLy Development 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 ReaLy Development Construction, you can compare the effects of market volatilities on Formosa Plastics and ReaLy Development 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 ReaLy Development. Check out your portfolio center. Please also check ongoing floating volatility patterns of Formosa Plastics and ReaLy Development.

Diversification Opportunities for Formosa Plastics and ReaLy Development

-0.81

Correlation Coefficient

Formosa Plastics  ReaLy Development

Pay attention - limited upside

The 3 months correlation between Formosa and ReaLy is -0.81. Overlapping area represents the amount of risk that can be diversified away by holding Formosa Plastics Corp and ReaLy Development Construction in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ReaLy Development 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 ReaLy Development. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ReaLy Development has no effect on the direction of Formosa Plastics i.e., Formosa Plastics and ReaLy Development go up and down completely randomly.

Pair Corralation between Formosa Plastics and ReaLy Development

Assuming the 90 days trading horizon Formosa Plastics Corp is expected to generate 1.99 times more return on investment than ReaLy Development. However, Formosa Plastics is 1.99 times more volatile than ReaLy Development Construction. It trades about 0.0 of its potential returns per unit of risk. ReaLy Development Construction is currently generating about -0.02 per unit of risk. If you would invest  3,725  in Formosa Plastics Corp on October 23, 2024 and sell it today you would lose (35.00) from holding Formosa Plastics Corp or give up 0.94% of portfolio value over 90 days.

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

Formosa Plastics Corp  vs.  ReaLy Development Construction

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 February 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

ReaLy Development

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in ReaLy Development Construction are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, ReaLy Development showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Formosa Plastics and ReaLy Development

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

The idea behind Formosa Plastics Corp and ReaLy Development Construction 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.