Correlation Between Cheng Shin and Formosa Chemicals

Can any of the company-specific risk be diversified away by investing in both Cheng Shin and Formosa Chemicals 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 Cheng Shin and Formosa Chemicals into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Cheng Shin Rubber and Formosa Chemicals Fibre, you can compare the effects of market volatilities on Cheng Shin and Formosa Chemicals 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 Cheng Shin with a short position of Formosa Chemicals. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cheng Shin and Formosa Chemicals.

Diversification Opportunities for Cheng Shin and Formosa Chemicals

0.13

Correlation Coefficient

Cheng Shin  Formosa Chemicals

Average diversification

The 3 months correlation between Cheng and Formosa is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding Cheng Shin Rubber and Formosa Chemicals Fibre in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Formosa Chemicals Fibre and Cheng Shin 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 Cheng Shin Rubber are associated (or correlated) with Formosa Chemicals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Formosa Chemicals Fibre has no effect on the direction of Cheng Shin i.e., Cheng Shin and Formosa Chemicals go up and down completely randomly.

Pair Corralation between Cheng Shin and Formosa Chemicals

Assuming the 90 days trading horizon Cheng Shin Rubber is expected to generate 1.13 times more return on investment than Formosa Chemicals. However, Cheng Shin is 1.13 times more volatile than Formosa Chemicals Fibre. It trades about 0.05 of its potential returns per unit of risk. Formosa Chemicals Fibre is currently generating about -0.09 per unit of risk. If you would invest  4,885  in Cheng Shin Rubber on September 5, 2024 and sell it today you would earn a total of  295.00  from holding Cheng Shin Rubber or generate 6.04% return on investment over 90 days.

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

Cheng Shin Rubber  vs.  Formosa Chemicals Fibre

Cheng Shin Rubber

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Cheng Shin Rubber are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Cheng Shin may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Formosa Chemicals Fibre

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Formosa Chemicals Fibre 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.

Pair Trading with Cheng Shin and Formosa Chemicals

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

The idea behind Cheng Shin Rubber and Formosa Chemicals Fibre 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.

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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.