Correlation Between Formosan Union and Basso Industry

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Can any of the company-specific risk be diversified away by investing in both Formosan Union and Basso Industry 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 Formosan Union and Basso Industry into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Formosan Union Chemical and Basso Industry Corp, you can compare the effects of market volatilities on Formosan Union and Basso Industry 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 Formosan Union with a short position of Basso Industry. Check out your portfolio center. Please also check ongoing floating volatility patterns of Formosan Union and Basso Industry.

Diversification Opportunities for Formosan Union and Basso Industry

0.81
  Correlation Coefficient

Very poor diversification

The 3 months correlation between Formosan and Basso is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Formosan Union Chemical and Basso Industry Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Basso Industry Corp and Formosan Union 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 Formosan Union Chemical are associated (or correlated) with Basso Industry. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Basso Industry Corp has no effect on the direction of Formosan Union i.e., Formosan Union and Basso Industry go up and down completely randomly.

Pair Corralation between Formosan Union and Basso Industry

Assuming the 90 days trading horizon Formosan Union Chemical is expected to generate 1.36 times more return on investment than Basso Industry. However, Formosan Union is 1.36 times more volatile than Basso Industry Corp. It trades about -0.25 of its potential returns per unit of risk. Basso Industry Corp is currently generating about -0.36 per unit of risk. If you would invest  2,165  in Formosan Union Chemical on October 9, 2024 and sell it today you would lose (105.00) from holding Formosan Union Chemical or give up 4.85% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

Formosan Union Chemical  vs.  Basso Industry Corp

 Performance 
       Timeline  
Formosan Union Chemical 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Formosan Union Chemical has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in February 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.
Basso Industry Corp 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Basso Industry Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Formosan Union and Basso Industry Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Formosan Union and Basso Industry

The main advantage of trading using opposite Formosan Union and Basso Industry positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Formosan Union position performs unexpectedly, Basso Industry 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 Basso Industry will offset losses from the drop in Basso Industry's long position.
The idea behind Formosan Union Chemical and Basso Industry Corp 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.

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