Correlation Between Formosa Chemicals and Far Eastern
Can any of the company-specific risk be diversified away by investing in both Formosa Chemicals and Far Eastern 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 Chemicals and Far Eastern into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Formosa Chemicals Fibre and Far Eastern New, you can compare the effects of market volatilities on Formosa Chemicals and Far Eastern 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 Chemicals with a short position of Far Eastern. Check out your portfolio center. Please also check ongoing floating volatility patterns of Formosa Chemicals and Far Eastern.
Diversification Opportunities for Formosa Chemicals and Far Eastern
0.72 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Formosa and Far is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Formosa Chemicals Fibre and Far Eastern New in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Far Eastern New and Formosa Chemicals 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 Chemicals Fibre are associated (or correlated) with Far Eastern. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Far Eastern New has no effect on the direction of Formosa Chemicals i.e., Formosa Chemicals and Far Eastern go up and down completely randomly.
Pair Corralation between Formosa Chemicals and Far Eastern
Assuming the 90 days trading horizon Formosa Chemicals Fibre is expected to under-perform the Far Eastern. In addition to that, Formosa Chemicals is 1.24 times more volatile than Far Eastern New. It trades about -0.08 of its total potential returns per unit of risk. Far Eastern New is currently generating about -0.07 per unit of volatility. If you would invest 3,610 in Far Eastern New on September 7, 2024 and sell it today you would lose (255.00) from holding Far Eastern New or give up 7.06% of portfolio value over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Significant |
Accuracy | 100.0% |
Values | Daily Returns |
Formosa Chemicals Fibre vs. Far Eastern New
Performance |
Timeline |
Formosa Chemicals Fibre |
Far Eastern New |
Formosa Chemicals and Far Eastern Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Formosa Chemicals and Far Eastern
The main advantage of trading using opposite Formosa Chemicals and Far Eastern positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Formosa Chemicals position performs unexpectedly, Far Eastern 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 Far Eastern will offset losses from the drop in Far Eastern's long position.Formosa Chemicals vs. Cheng Shin Rubber | Formosa Chemicals vs. Taiwan Cement Corp | Formosa Chemicals vs. China Steel Chemical | Formosa Chemicals vs. Ruentex Development Co |
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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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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