Correlation Between Formosa Chemicals and Chun Yuan

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

By analyzing existing cross correlation between Formosa Chemicals Fibre and Chun Yuan Steel, you can compare the effects of market volatilities on Formosa Chemicals and Chun Yuan 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 Chemicals with a short position of Chun Yuan. Check out your portfolio center. Please also check ongoing floating volatility patterns of Formosa Chemicals and Chun Yuan.

Diversification Opportunities for Formosa Chemicals and Chun Yuan

0.15

Correlation Coefficient

Formosa Chemicals  Chun Yuan

Average diversification

The 3 months correlation between Formosa and Chun is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding Formosa Chemicals Fibre and Chun Yuan Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chun Yuan Steel and Formosa Chemicals 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 Chemicals Fibre are associated (or correlated) with Chun Yuan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chun Yuan Steel has no effect on the direction of Formosa Chemicals i.e., Formosa Chemicals and Chun Yuan go up and down completely randomly.

Pair Corralation between Formosa Chemicals and Chun Yuan

Assuming the 90 days trading horizon Formosa Chemicals Fibre is expected to under-perform the Chun Yuan. In addition to that, Formosa Chemicals is 1.25 times more volatile than Chun Yuan Steel. It trades about -0.39 of its total potential returns per unit of risk. Chun Yuan Steel is currently generating about -0.01 per unit of volatility. If you would invest  1,850  in Chun Yuan Steel on September 27, 2024 and sell it today you would lose (35.00) from holding Chun Yuan Steel or give up 1.89% of portfolio value over 90 days.

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

Formosa Chemicals Fibre  vs.  Chun Yuan Steel

Formosa Chemicals Fibre

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Formosa Chemicals Fibre 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.

Chun Yuan Steel

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Chun Yuan Steel has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Chun Yuan is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Formosa Chemicals and Chun Yuan

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

The idea behind Formosa Chemicals Fibre and Chun Yuan Steel 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.