Correlation Between Formosa Chemicals and Feng Tay
Can any of the company-specific risk be diversified away by investing in both Formosa Chemicals and Feng Tay 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 Feng Tay 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 Feng Tay Enterprises, you can compare the effects of market volatilities on Formosa Chemicals and Feng Tay 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 Feng Tay. Check out your portfolio center. Please also check ongoing floating volatility patterns of Formosa Chemicals and Feng Tay.
Diversification Opportunities for Formosa Chemicals and Feng Tay
0.82 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Formosa and Feng is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Formosa Chemicals Fibre and Feng Tay Enterprises in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Feng Tay Enterprises 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 Feng Tay. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Feng Tay Enterprises has no effect on the direction of Formosa Chemicals i.e., Formosa Chemicals and Feng Tay go up and down completely randomly.
Pair Corralation between Formosa Chemicals and Feng Tay
Assuming the 90 days trading horizon Formosa Chemicals Fibre is expected to under-perform the Feng Tay. But the stock apears to be less risky and, when comparing its historical volatility, Formosa Chemicals Fibre is 1.35 times less risky than Feng Tay. The stock trades about -0.11 of its potential returns per unit of risk. The Feng Tay Enterprises is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest 18,130 in Feng Tay Enterprises on September 6, 2024 and sell it today you would lose (4,180) from holding Feng Tay Enterprises or give up 23.06% of portfolio value over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Strong |
Accuracy | 99.79% |
Values | Daily Returns |
Formosa Chemicals Fibre vs. Feng Tay Enterprises
Performance |
Timeline |
Formosa Chemicals Fibre |
Feng Tay Enterprises |
Formosa Chemicals and Feng Tay Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Formosa Chemicals and Feng Tay
The main advantage of trading using opposite Formosa Chemicals and Feng Tay positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Formosa Chemicals position performs unexpectedly, Feng Tay 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 Feng Tay will offset losses from the drop in Feng Tay's long position.Formosa Chemicals vs. Formosa Plastics Corp | Formosa Chemicals vs. Nan Ya Plastics | Formosa Chemicals vs. Formosa Petrochemical Corp | Formosa Chemicals vs. Cathay Financial Holding |
Feng Tay vs. Pou Chen Corp | Feng Tay vs. Eclat Textile Co | Feng Tay vs. Hotai Motor Co | Feng Tay vs. Giant Manufacturing Co |
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 Transaction History module to view history of all your transactions and understand their impact on performance.
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