Correlation Between Cheng Mei and Formosan Rubber
Can any of the company-specific risk be diversified away by investing in both Cheng Mei 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 Cheng Mei and Formosan Rubber into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Cheng Mei Materials and Formosan Rubber Group, you can compare the effects of market volatilities on Cheng Mei 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 Cheng Mei with a short position of Formosan Rubber. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cheng Mei and Formosan Rubber.
Diversification Opportunities for Cheng Mei and Formosan Rubber
0.55 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Cheng and Formosan is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Cheng Mei 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 Cheng Mei 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 Cheng Mei 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 Cheng Mei i.e., Cheng Mei and Formosan Rubber go up and down completely randomly.
Pair Corralation between Cheng Mei and Formosan Rubber
Assuming the 90 days trading horizon Cheng Mei Materials is expected to generate 1.78 times more return on investment than Formosan Rubber. However, Cheng Mei is 1.78 times more volatile than Formosan Rubber Group. It trades about 0.11 of its potential returns per unit of risk. Formosan Rubber Group is currently generating about 0.14 per unit of risk. If you would invest 1,315 in Cheng Mei Materials on December 5, 2024 and sell it today you would earn a total of 50.00 from holding Cheng Mei Materials or generate 3.8% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Weak |
Accuracy | 100.0% |
Values | Daily Returns |
Cheng Mei Materials vs. Formosan Rubber Group
Performance |
Timeline |
Cheng Mei Materials |
Formosan Rubber Group |
Cheng Mei and Formosan Rubber Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Cheng Mei and Formosan Rubber
The main advantage of trading using opposite Cheng Mei and Formosan Rubber positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cheng Mei 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.Cheng Mei vs. Hua Nan Financial | Cheng Mei vs. China Development Financial | Cheng Mei vs. Ching Feng Home | Cheng Mei vs. Landis Taipei Hotel |
Formosan Rubber vs. Nankang Rubber Tire | Formosan Rubber vs. Federal Corp | Formosan Rubber vs. Kenda Rubber Industrial | Formosan Rubber vs. Yulon Motor Co |
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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.
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