Correlation Between Formosa Petrochemical and Nan Pao

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Can any of the company-specific risk be diversified away by investing in both Formosa Petrochemical and Nan Pao 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 Nan Pao 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 Nan Pao Resins, you can compare the effects of market volatilities on Formosa Petrochemical and Nan Pao 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 Nan Pao. Check out your portfolio center. Please also check ongoing floating volatility patterns of Formosa Petrochemical and Nan Pao.

Diversification Opportunities for Formosa Petrochemical and Nan Pao

FormosaNanDiversified AwayFormosaNanDiversified Away100%
-0.59
  Correlation Coefficient

Excellent diversification

The 3 months correlation between Formosa and Nan is -0.59. Overlapping area represents the amount of risk that can be diversified away by holding Formosa Petrochemical Corp and Nan Pao Resins in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nan Pao Resins 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 Nan Pao. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nan Pao Resins has no effect on the direction of Formosa Petrochemical i.e., Formosa Petrochemical and Nan Pao go up and down completely randomly.

Pair Corralation between Formosa Petrochemical and Nan Pao

Assuming the 90 days trading horizon Formosa Petrochemical Corp is expected to under-perform the Nan Pao. In addition to that, Formosa Petrochemical is 1.01 times more volatile than Nan Pao Resins. It trades about -0.37 of its total potential returns per unit of risk. Nan Pao Resins is currently generating about 0.08 per unit of volatility. If you would invest  30,050  in Nan Pao Resins on October 13, 2024 and sell it today you would earn a total of  2,500  from holding Nan Pao Resins or generate 8.32% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Formosa Petrochemical Corp  vs.  Nan Pao Resins

 Performance 
JavaScript chart by amCharts 3.21.15OctNovDec -30-20-100
JavaScript chart by amCharts 3.21.156505 4766
       Timeline  
Formosa Petrochemical 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
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 February 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.
JavaScript chart by amCharts 3.21.15NovDecJanDecJan35404550
Nan Pao Resins 

Risk-Adjusted Performance

6 of 100

 
Weak
 
Strong
Modest
Compared to the overall equity markets, risk-adjusted returns on investments in Nan Pao Resins are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Nan Pao may actually be approaching a critical reversion point that can send shares even higher in February 2025.
JavaScript chart by amCharts 3.21.15NovDecJanDecJan280290300310320330340

Formosa Petrochemical and Nan Pao Volatility Contrast

   Predicted Return Density   
JavaScript chart by amCharts 3.21.15-3.41-2.59-1.77-0.95-0.130.471.051.632.212.79 0.060.080.100.12
JavaScript chart by amCharts 3.21.156505 4766
       Returns  

Pair Trading with Formosa Petrochemical and Nan Pao

The main advantage of trading using opposite Formosa Petrochemical and Nan Pao positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Formosa Petrochemical position performs unexpectedly, Nan Pao 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 Nan Pao will offset losses from the drop in Nan Pao's long position.
The idea behind Formosa Petrochemical Corp and Nan Pao Resins 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.

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