Correlation Between Formosa Chemicals and Hsin Kuang

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

Diversification Opportunities for Formosa Chemicals and Hsin Kuang

0.47

Correlation Coefficient

Formosa Chemicals  Hsin Kuang

Very weak diversification

The 3 months correlation between Formosa and Hsin is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Formosa Chemicals Fibre and Hsin Kuang Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hsin Kuang Steel 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 Hsin Kuang. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hsin Kuang Steel has no effect on the direction of Formosa Chemicals i.e., Formosa Chemicals and Hsin Kuang go up and down completely randomly.

Pair Corralation between Formosa Chemicals and Hsin Kuang

Assuming the 90 days trading horizon Formosa Chemicals Fibre is expected to under-perform the Hsin Kuang. In addition to that, Formosa Chemicals is 1.27 times more volatile than Hsin Kuang Steel. It trades about 0.0 of its total potential returns per unit of risk. Hsin Kuang Steel is currently generating about 0.08 per unit of volatility. If you would invest  4,615  in Hsin Kuang Steel on December 27, 2024 and sell it today you would earn a total of  405.00  from holding Hsin Kuang Steel or generate 8.78% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.21%
Values	Daily Returns

Formosa Chemicals Fibre  vs.  Hsin Kuang Steel

Formosa Chemicals Fibre

Risk-Adjusted Performance

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 fairly stable basic indicators, Formosa Chemicals is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Hsin Kuang Steel

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Hsin Kuang Steel are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Hsin Kuang may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Formosa Chemicals and Hsin Kuang

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

The idea behind Formosa Chemicals Fibre and Hsin Kuang Steel 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.