Correlation Between Sanyang and Formosan Rubber

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

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

Diversification Opportunities for Sanyang and Formosan Rubber

-0.42

Correlation Coefficient

Sanyang  Formosan Rubber

Very good diversification

The 3 months correlation between Sanyang and Formosan is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding Sanyang Motor Co 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 Sanyang 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 Sanyang Motor Co 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 Sanyang i.e., Sanyang and Formosan Rubber go up and down completely randomly.

Pair Corralation between Sanyang and Formosan Rubber

Assuming the 90 days trading horizon Sanyang Motor Co is expected to under-perform the Formosan Rubber. In addition to that, Sanyang is 2.01 times more volatile than Formosan Rubber Group. It trades about -0.02 of its total potential returns per unit of risk. Formosan Rubber Group is currently generating about -0.01 per unit of volatility. If you would invest  2,565  in Formosan Rubber Group on October 6, 2024 and sell it today you would lose (10.00) from holding Formosan Rubber Group or give up 0.39% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	97.73%
Values	Daily Returns

Sanyang Motor Co  vs.  Formosan Rubber Group

Sanyang Motor

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sanyang Motor Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Sanyang is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

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.

Pair Trading with Sanyang and Formosan Rubber

The main advantage of trading using opposite Sanyang and Formosan Rubber positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sanyang 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 Sanyang Motor Co 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .