Correlation Between Double Bond and Formosa Chemicals

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

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

Diversification Opportunities for Double Bond and Formosa Chemicals

0.05

Correlation Coefficient

Double Bond  Formosa Chemicals

Significant diversification

The 3 months correlation between Double and Formosa is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding Double Bond Chemical and Formosa Chemicals Fibre in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Formosa Chemicals Fibre and Double Bond 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 Double Bond Chemical are associated (or correlated) with Formosa Chemicals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Formosa Chemicals Fibre has no effect on the direction of Double Bond i.e., Double Bond and Formosa Chemicals go up and down completely randomly.

Pair Corralation between Double Bond and Formosa Chemicals

Assuming the 90 days trading horizon Double Bond is expected to generate 1.64 times less return on investment than Formosa Chemicals. But when comparing it to its historical volatility, Double Bond Chemical is 2.44 times less risky than Formosa Chemicals. It trades about 0.03 of its potential returns per unit of risk. Formosa Chemicals Fibre is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  2,760  in Formosa Chemicals Fibre on December 28, 2024 and sell it today you would earn a total of  35.00  from holding Formosa Chemicals Fibre or generate 1.27% return on investment over 90 days.

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

Double Bond Chemical  vs.  Formosa Chemicals Fibre

Double Bond Chemical

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Double Bond Chemical are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Double Bond is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Formosa Chemicals Fibre

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Formosa Chemicals Fibre are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Formosa Chemicals 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 Double Bond and Formosa Chemicals

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

The idea behind Double Bond Chemical and Formosa Chemicals Fibre 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.