Correlation Between Sesoda Corp and Formosa Petrochemical
Can any of the company-specific risk be diversified away by investing in both Sesoda Corp and Formosa Petrochemical 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 Sesoda Corp and Formosa Petrochemical into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Sesoda Corp and Formosa Petrochemical Corp, you can compare the effects of market volatilities on Sesoda Corp and Formosa Petrochemical 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 Sesoda Corp with a short position of Formosa Petrochemical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sesoda Corp and Formosa Petrochemical.
Diversification Opportunities for Sesoda Corp and Formosa Petrochemical
0.22 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Sesoda and Formosa is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Sesoda Corp and Formosa Petrochemical Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Formosa Petrochemical and Sesoda Corp 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 Sesoda Corp are associated (or correlated) with Formosa Petrochemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Formosa Petrochemical has no effect on the direction of Sesoda Corp i.e., Sesoda Corp and Formosa Petrochemical go up and down completely randomly.
Pair Corralation between Sesoda Corp and Formosa Petrochemical
Assuming the 90 days trading horizon Sesoda Corp is expected to generate 0.96 times more return on investment than Formosa Petrochemical. However, Sesoda Corp is 1.04 times less risky than Formosa Petrochemical. It trades about -0.37 of its potential returns per unit of risk. Formosa Petrochemical Corp is currently generating about -0.59 per unit of risk. If you would invest 4,270 in Sesoda Corp on September 25, 2024 and sell it today you would lose (510.00) from holding Sesoda Corp or give up 11.94% of portfolio value over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Very Weak |
Accuracy | 95.45% |
Values | Daily Returns |
Sesoda Corp vs. Formosa Petrochemical Corp
Performance |
Timeline |
Sesoda Corp |
Formosa Petrochemical |
Sesoda Corp and Formosa Petrochemical Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Sesoda Corp and Formosa Petrochemical
The main advantage of trading using opposite Sesoda Corp and Formosa Petrochemical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sesoda Corp position performs unexpectedly, Formosa Petrochemical 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 Formosa Petrochemical will offset losses from the drop in Formosa Petrochemical's long position.Sesoda Corp vs. Formosa Plastics Corp | Sesoda Corp vs. Formosa Chemicals Fibre | Sesoda Corp vs. China Steel Corp | Sesoda Corp vs. Formosa Petrochemical Corp |
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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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.
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