Correlation Between Formosan Rubber and Hsin Yung

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

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

Diversification Opportunities for Formosan Rubber and Hsin Yung

0.02

Correlation Coefficient

Formosan Rubber  Hsin Yung

Significant diversification

The 3 months correlation between Formosan and Hsin is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Formosan Rubber Group and Hsin Yung Chien in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hsin Yung Chien and Formosan Rubber 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 Rubber Group are associated (or correlated) with Hsin Yung. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hsin Yung Chien has no effect on the direction of Formosan Rubber i.e., Formosan Rubber and Hsin Yung go up and down completely randomly.

Pair Corralation between Formosan Rubber and Hsin Yung

Assuming the 90 days trading horizon Formosan Rubber Group is expected to generate 0.91 times more return on investment than Hsin Yung. However, Formosan Rubber Group is 1.1 times less risky than Hsin Yung. It trades about 0.01 of its potential returns per unit of risk. Hsin Yung Chien is currently generating about -0.06 per unit of risk. If you would invest  2,575  in Formosan Rubber Group on October 3, 2024 and sell it today you would earn a total of  5.00  from holding Formosan Rubber Group or generate 0.19% return on investment over 90 days.

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

Formosan Rubber Group  vs.  Hsin Yung Chien

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.

Hsin Yung Chien

Risk-Adjusted Performance

0 of 100

Very Weak

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

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

The idea behind Formosan Rubber Group and Hsin Yung Chien 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.