Correlation Between Feng Tay and Formosa Chemicals
Can any of the company-specific risk be diversified away by investing in both Feng Tay 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 Feng Tay and Formosa Chemicals into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Feng Tay Enterprises and Formosa Chemicals Fibre, you can compare the effects of market volatilities on Feng Tay 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 Feng Tay with a short position of Formosa Chemicals. Check out your portfolio center. Please also check ongoing floating volatility patterns of Feng Tay and Formosa Chemicals.
Diversification Opportunities for Feng Tay and Formosa Chemicals
0.83 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Feng and Formosa is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Feng Tay Enterprises 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 Feng Tay 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 Feng Tay Enterprises 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 Feng Tay i.e., Feng Tay and Formosa Chemicals go up and down completely randomly.
Pair Corralation between Feng Tay and Formosa Chemicals
Assuming the 90 days trading horizon Feng Tay Enterprises is expected to generate 1.07 times more return on investment than Formosa Chemicals. However, Feng Tay is 1.07 times more volatile than Formosa Chemicals Fibre. It trades about 0.03 of its potential returns per unit of risk. Formosa Chemicals Fibre is currently generating about -0.09 per unit of risk. If you would invest 13,550 in Feng Tay Enterprises on September 5, 2024 and sell it today you would earn a total of 400.00 from holding Feng Tay Enterprises or generate 2.95% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Strong |
Accuracy | 100.0% |
Values | Daily Returns |
Feng Tay Enterprises vs. Formosa Chemicals Fibre
Performance |
Timeline |
Feng Tay Enterprises |
Formosa Chemicals Fibre |
Feng Tay and Formosa Chemicals Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Feng Tay and Formosa Chemicals
The main advantage of trading using opposite Feng Tay and Formosa Chemicals positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Feng Tay 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.Feng Tay vs. Pou Chen Corp | Feng Tay vs. Eclat Textile Co | Feng Tay vs. Hotai Motor Co | Feng Tay vs. Giant Manufacturing 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.
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