Correlation Between Formosa Plastics and Century Iron
Can any of the company-specific risk be diversified away by investing in both Formosa Plastics and Century Iron 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 Century Iron 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 Century Iron And, you can compare the effects of market volatilities on Formosa Plastics and Century Iron 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 Century Iron. Check out your portfolio center. Please also check ongoing floating volatility patterns of Formosa Plastics and Century Iron.
Diversification Opportunities for Formosa Plastics and Century Iron
0.8 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Formosa and Century is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Formosa Plastics Corp and Century Iron And in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Century Iron And 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 Century Iron. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Century Iron And has no effect on the direction of Formosa Plastics i.e., Formosa Plastics and Century Iron go up and down completely randomly.
Pair Corralation between Formosa Plastics and Century Iron
Assuming the 90 days trading horizon Formosa Plastics Corp is expected to generate 0.77 times more return on investment than Century Iron. However, Formosa Plastics Corp is 1.29 times less risky than Century Iron. It trades about -0.19 of its potential returns per unit of risk. Century Iron And is currently generating about -0.19 per unit of risk. If you would invest 4,850 in Formosa Plastics Corp on September 24, 2024 and sell it today you would lose (1,180) from holding Formosa Plastics Corp or give up 24.33% of portfolio value over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Strong |
Accuracy | 100.0% |
Values | Daily Returns |
Formosa Plastics Corp vs. Century Iron And
Performance |
Timeline |
Formosa Plastics Corp |
Century Iron And |
Formosa Plastics and Century Iron Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Formosa Plastics and Century Iron
The main advantage of trading using opposite Formosa Plastics and Century Iron positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Formosa Plastics position performs unexpectedly, Century Iron 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 Century Iron will offset losses from the drop in Century Iron's long position.Formosa Plastics vs. Nan Ya Plastics | Formosa Plastics vs. Formosa Chemicals Fibre | Formosa Plastics vs. China Steel Corp | Formosa Plastics vs. Formosa Petrochemical Corp |
Century Iron vs. Formosa Plastics Corp | Century Iron vs. Formosa Chemicals Fibre | Century Iron vs. China Steel Corp | Century Iron vs. Formosa Petrochemical Corp |
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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.
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