Correlation Between Formosa Petrochemical and Zeng Hsing

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

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

Diversification Opportunities for Formosa Petrochemical and Zeng Hsing

0.82

Correlation Coefficient

Formosa Petrochemical  Zeng Hsing

Very poor diversification

The 3 months correlation between Formosa and Zeng is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Formosa Petrochemical Corp and Zeng Hsing Industrial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Zeng Hsing Industrial and Formosa Petrochemical 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 Formosa Petrochemical Corp are associated (or correlated) with Zeng Hsing. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Zeng Hsing Industrial has no effect on the direction of Formosa Petrochemical i.e., Formosa Petrochemical and Zeng Hsing go up and down completely randomly.

Pair Corralation between Formosa Petrochemical and Zeng Hsing

Assuming the 90 days trading horizon Formosa Petrochemical Corp is expected to under-perform the Zeng Hsing. In addition to that, Formosa Petrochemical is 1.25 times more volatile than Zeng Hsing Industrial. It trades about -0.48 of its total potential returns per unit of risk. Zeng Hsing Industrial is currently generating about 0.04 per unit of volatility. If you would invest  10,250  in Zeng Hsing Industrial on September 15, 2024 and sell it today you would earn a total of  100.00  from holding Zeng Hsing Industrial or generate 0.98% return on investment over 90 days.

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

Formosa Petrochemical Corp  vs.  Zeng Hsing Industrial

Formosa Petrochemical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Formosa Petrochemical Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in January 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Zeng Hsing Industrial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Zeng Hsing Industrial has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Pair Trading with Formosa Petrochemical and Zeng Hsing

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

The idea behind Formosa Petrochemical Corp and Zeng Hsing Industrial 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.