Correlation Between Formosan Rubber and Yulon

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Can any of the company-specific risk be diversified away by investing in both Formosan Rubber and Yulon 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 Yulon 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 Yulon Motor Co, you can compare the effects of market volatilities on Formosan Rubber and Yulon 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 Yulon. Check out your portfolio center. Please also check ongoing floating volatility patterns of Formosan Rubber and Yulon.

Diversification Opportunities for Formosan Rubber and Yulon

-0.32
  Correlation Coefficient

Very good diversification

The 3 months correlation between Formosan and Yulon is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding Formosan Rubber Group and Yulon Motor Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Yulon Motor 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 Yulon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Yulon Motor has no effect on the direction of Formosan Rubber i.e., Formosan Rubber and Yulon go up and down completely randomly.

Pair Corralation between Formosan Rubber and Yulon

Assuming the 90 days trading horizon Formosan Rubber Group is expected to generate 0.27 times more return on investment than Yulon. However, Formosan Rubber Group is 3.76 times less risky than Yulon. It trades about -0.01 of its potential returns per unit of risk. Yulon Motor Co is currently generating about -0.06 per unit of risk. If you would invest  2,600  in Formosan Rubber Group on September 18, 2024 and sell it today you would lose (15.00) from holding Formosan Rubber Group or give up 0.58% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Formosan Rubber Group  vs.  Yulon Motor Co

 Performance 
       Timeline  
Formosan Rubber Group 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
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.
Yulon Motor 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Yulon Motor Co 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 and Yulon Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Formosan Rubber and Yulon

The main advantage of trading using opposite Formosan Rubber and Yulon positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Formosan Rubber position performs unexpectedly, Yulon 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 Yulon will offset losses from the drop in Yulon's long position.
The idea behind Formosan Rubber Group and Yulon Motor Co 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.

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