Correlation Between Chung Hwa and Formosan Rubber

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

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

Diversification Opportunities for Chung Hwa and Formosan Rubber

0.51

Correlation Coefficient

Chung Hwa  Formosan Rubber

Very weak diversification

The 3 months correlation between Chung and Formosan is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Chung Hwa Pulp 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 Chung Hwa 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 Chung Hwa Pulp 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 Chung Hwa i.e., Chung Hwa and Formosan Rubber go up and down completely randomly.

Pair Corralation between Chung Hwa and Formosan Rubber

Assuming the 90 days trading horizon Chung Hwa Pulp is expected to under-perform the Formosan Rubber. In addition to that, Chung Hwa is 2.58 times more volatile than Formosan Rubber Group. It trades about -0.09 of its total potential returns per unit of risk. Formosan Rubber Group is currently generating about 0.07 per unit of volatility. If you would invest  2,585  in Formosan Rubber Group on December 28, 2024 and sell it today you would earn a total of  60.00  from holding Formosan Rubber Group or generate 2.32% return on investment over 90 days.

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

Chung Hwa Pulp  vs.  Formosan Rubber Group

Chung Hwa Pulp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Chung Hwa Pulp 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 Rubber Group

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Formosan Rubber Group are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. 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 Chung Hwa and Formosan Rubber

The main advantage of trading using opposite Chung Hwa and Formosan Rubber positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Chung Hwa 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 Chung Hwa Pulp 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.