Correlation Between Jinan Acetate and Formosa Petrochemical

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

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

Diversification Opportunities for Jinan Acetate and Formosa Petrochemical

0.56

Correlation Coefficient

Jinan Acetate  Formosa Petrochemical

Very weak diversification

The 3 months correlation between Jinan and Formosa is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Jinan Acetate Chemical and Formosa Petrochemical Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Formosa Petrochemical and Jinan Acetate 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 Jinan Acetate Chemical 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 Jinan Acetate i.e., Jinan Acetate and Formosa Petrochemical go up and down completely randomly.

Pair Corralation between Jinan Acetate and Formosa Petrochemical

Assuming the 90 days trading horizon Jinan Acetate is expected to generate 2.0 times less return on investment than Formosa Petrochemical. But when comparing it to its historical volatility, Jinan Acetate Chemical is 1.03 times less risky than Formosa Petrochemical. It trades about 0.04 of its potential returns per unit of risk. Formosa Petrochemical Corp is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  3,460  in Formosa Petrochemical Corp on December 28, 2024 and sell it today you would earn a total of  370.00  from holding Formosa Petrochemical Corp or generate 10.69% return on investment over 90 days.

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

Jinan Acetate Chemical  vs.  Formosa Petrochemical Corp

Jinan Acetate Chemical

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Jinan Acetate Chemical are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Jinan Acetate may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Formosa Petrochemical

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Formosa Petrochemical Corp are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Formosa Petrochemical showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Jinan Acetate and Formosa Petrochemical

The main advantage of trading using opposite Jinan Acetate and Formosa Petrochemical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Jinan Acetate 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.

The idea behind Jinan Acetate Chemical and Formosa Petrochemical 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.

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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..