Correlation Between CSBC Corp and Formosa Plastics

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

By analyzing existing cross correlation between CSBC Corp Taiwan and Formosa Plastics Corp, you can compare the effects of market volatilities on CSBC Corp and Formosa Plastics 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 CSBC Corp with a short position of Formosa Plastics. Check out your portfolio center. Please also check ongoing floating volatility patterns of CSBC Corp and Formosa Plastics.

Diversification Opportunities for CSBC Corp and Formosa Plastics

0.89

Correlation Coefficient

CSBC Corp  Formosa Plastics

Very poor diversification

The 3 months correlation between CSBC and Formosa is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding CSBC Corp Taiwan and Formosa Plastics Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Formosa Plastics Corp and CSBC Corp 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 CSBC Corp Taiwan are associated (or correlated) with Formosa Plastics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Formosa Plastics Corp has no effect on the direction of CSBC Corp i.e., CSBC Corp and Formosa Plastics go up and down completely randomly.

Pair Corralation between CSBC Corp and Formosa Plastics

Assuming the 90 days trading horizon CSBC Corp Taiwan is expected to generate 0.61 times more return on investment than Formosa Plastics. However, CSBC Corp Taiwan is 1.65 times less risky than Formosa Plastics. It trades about -0.12 of its potential returns per unit of risk. Formosa Plastics Corp is currently generating about -0.18 per unit of risk. If you would invest  1,745  in CSBC Corp Taiwan on September 16, 2024 and sell it today you would lose (165.00) from holding CSBC Corp Taiwan or give up 9.46% of portfolio value over 90 days.

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

CSBC Corp Taiwan  vs.  Formosa Plastics Corp

CSBC Corp Taiwan

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CSBC Corp Taiwan 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.

Formosa Plastics Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Formosa Plastics Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in January 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Pair Trading with CSBC Corp and Formosa Plastics

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

The idea behind CSBC Corp Taiwan and Formosa Plastics Corp 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.