Correlation Between Advanced Echem and Formosan Rubber

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

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

Diversification Opportunities for Advanced Echem and Formosan Rubber

-0.29

Correlation Coefficient

Advanced Echem  Formosan Rubber

Very good diversification

The 3 months correlation between Advanced and Formosan is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding Advanced Echem Materials 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 Advanced Echem 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 Advanced Echem Materials 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 Advanced Echem i.e., Advanced Echem and Formosan Rubber go up and down completely randomly.

Pair Corralation between Advanced Echem and Formosan Rubber

Assuming the 90 days trading horizon Advanced Echem Materials is expected to generate 2.31 times more return on investment than Formosan Rubber. However, Advanced Echem is 2.31 times more volatile than Formosan Rubber Group. It trades about 0.12 of its potential returns per unit of risk. Formosan Rubber Group is currently generating about 0.04 per unit of risk. If you would invest  17,904  in Advanced Echem Materials on October 5, 2024 and sell it today you would earn a total of  47,996  from holding Advanced Echem Materials or generate 268.07% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.79%
Values	Daily Returns

Advanced Echem Materials  vs.  Formosan Rubber Group

Advanced Echem Materials

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days Advanced Echem Materials has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Advanced Echem 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

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Formosan Rubber Group are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. 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 Advanced Echem and Formosan Rubber

The main advantage of trading using opposite Advanced Echem and Formosan Rubber positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Advanced Echem 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 Advanced Echem Materials 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.