Correlation Between Formosa Plastics and Jinan Acetate

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

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

Diversification Opportunities for Formosa Plastics and Jinan Acetate

0.37

Correlation Coefficient

Formosa Plastics  Jinan Acetate

Weak diversification

The 3 months correlation between Formosa and Jinan is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Formosa Plastics Corp and Jinan Acetate Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Jinan Acetate Chemical and Formosa Plastics 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 Plastics Corp are associated (or correlated) with Jinan Acetate. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Jinan Acetate Chemical has no effect on the direction of Formosa Plastics i.e., Formosa Plastics and Jinan Acetate go up and down completely randomly.

Pair Corralation between Formosa Plastics and Jinan Acetate

Assuming the 90 days trading horizon Formosa Plastics Corp is expected to under-perform the Jinan Acetate. But the stock apears to be less risky and, when comparing its historical volatility, Formosa Plastics Corp is 1.08 times less risky than Jinan Acetate. The stock trades about -0.12 of its potential returns per unit of risk. The Jinan Acetate Chemical is currently generating about -0.06 of returns per unit of risk over similar time horizon. If you would invest  98,900  in Jinan Acetate Chemical on September 3, 2024 and sell it today you would lose (10,000) from holding Jinan Acetate Chemical or give up 10.11% of portfolio value over 90 days.

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

Formosa Plastics Corp  vs.  Jinan Acetate Chemical

Formosa Plastics Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Formosa Plastics 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.

Jinan Acetate Chemical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Jinan Acetate Chemical 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 Plastics and Jinan Acetate

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

The idea behind Formosa Plastics Corp and Jinan Acetate Chemical 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..