Correlation Between Victory New and Formosan Rubber

Can any of the company-specific risk be diversified away by investing in both Victory New and Formosan Rubber 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 Victory New and Formosan Rubber into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Victory New Materials and Formosan Rubber Group, you can compare the effects of market volatilities on Victory New and Formosan Rubber 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 Victory New with a short position of Formosan Rubber. Check out your portfolio center. Please also check ongoing floating volatility patterns of Victory New and Formosan Rubber.

Diversification Opportunities for Victory New and Formosan Rubber

-0.22

Correlation Coefficient

Victory New  Formosan Rubber

Very good diversification

The 3 months correlation between Victory and Formosan is -0.22. Overlapping area represents the amount of risk that can be diversified away by holding Victory New Materials and Formosan Rubber Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Formosan Rubber Group and Victory New 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 Victory New Materials are associated (or correlated) with Formosan Rubber. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Formosan Rubber Group has no effect on the direction of Victory New i.e., Victory New and Formosan Rubber go up and down completely randomly.

Pair Corralation between Victory New and Formosan Rubber

Assuming the 90 days trading horizon Victory New Materials is expected to under-perform the Formosan Rubber. In addition to that, Victory New is 2.95 times more volatile than Formosan Rubber Group. It trades about -0.04 of its total potential returns per unit of risk. Formosan Rubber Group is currently generating about -0.01 per unit of volatility. If you would invest  2,600  in Formosan Rubber Group on September 17, 2024 and sell it today you would lose (10.00) from holding Formosan Rubber Group or give up 0.38% of portfolio value over 90 days.

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

Victory New Materials  vs.  Formosan Rubber Group

Victory New Materials

Risk-Adjusted Performance

0 of 100

Very Weak

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

Formosan Rubber Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Formosan Rubber Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Formosan Rubber 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 Victory New and Formosan Rubber

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

The idea behind Victory New Materials and Formosan Rubber Group 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.