Correlation Between Elan Microelectronics and Formosa Petrochemical
Can any of the company-specific risk be diversified away by investing in both Elan Microelectronics and Formosa Petrochemical 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 Elan Microelectronics and Formosa Petrochemical into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Elan Microelectronics Corp and Formosa Petrochemical Corp, you can compare the effects of market volatilities on Elan Microelectronics and Formosa Petrochemical 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 Elan Microelectronics with a short position of Formosa Petrochemical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Elan Microelectronics and Formosa Petrochemical.
Diversification Opportunities for Elan Microelectronics and Formosa Petrochemical
-0.61 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Elan and Formosa is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding Elan Microelectronics Corp and Formosa Petrochemical Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Formosa Petrochemical and Elan Microelectronics 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 Elan Microelectronics Corp are associated (or correlated) with Formosa Petrochemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Formosa Petrochemical has no effect on the direction of Elan Microelectronics i.e., Elan Microelectronics and Formosa Petrochemical go up and down completely randomly.
Pair Corralation between Elan Microelectronics and Formosa Petrochemical
Assuming the 90 days trading horizon Elan Microelectronics Corp is expected to generate 1.26 times more return on investment than Formosa Petrochemical. However, Elan Microelectronics is 1.26 times more volatile than Formosa Petrochemical Corp. It trades about 0.03 of its potential returns per unit of risk. Formosa Petrochemical Corp is currently generating about -0.59 per unit of risk. If you would invest 15,000 in Elan Microelectronics Corp on September 25, 2024 and sell it today you would earn a total of 150.00 from holding Elan Microelectronics Corp or generate 1.0% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Against |
Strength | Weak |
Accuracy | 100.0% |
Values | Daily Returns |
Elan Microelectronics Corp vs. Formosa Petrochemical Corp
Performance |
Timeline |
Elan Microelectronics |
Formosa Petrochemical |
Elan Microelectronics and Formosa Petrochemical Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Elan Microelectronics and Formosa Petrochemical
The main advantage of trading using opposite Elan Microelectronics and Formosa Petrochemical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Elan Microelectronics position performs unexpectedly, Formosa Petrochemical 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 Petrochemical will offset losses from the drop in Formosa Petrochemical's long position.Elan Microelectronics vs. Century Wind Power | Elan Microelectronics vs. Green World Fintech | Elan Microelectronics vs. Ingentec | Elan Microelectronics vs. Chaheng Precision Co |
Formosa Petrochemical vs. Sesoda Corp | Formosa Petrochemical vs. WT Microelectronics Co | Formosa Petrochemical vs. Chinese Maritime Transport | Formosa Petrochemical vs. Elan Microelectronics Corp |
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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.
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