Correlation Between Formosa Chemicals and Hai Kwang

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

Diversification Opportunities for Formosa Chemicals and Hai Kwang

0.9

Correlation Coefficient

Formosa Chemicals  Hai Kwang

Almost no diversification

The 3 months correlation between Formosa and Hai is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Formosa Chemicals Fibre and Hai Kwang Enterprise in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hai Kwang Enterprise 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 Hai Kwang. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hai Kwang Enterprise has no effect on the direction of Formosa Chemicals i.e., Formosa Chemicals and Hai Kwang go up and down completely randomly.

Pair Corralation between Formosa Chemicals and Hai Kwang

Assuming the 90 days trading horizon Formosa Chemicals Fibre is expected to under-perform the Hai Kwang. But the stock apears to be less risky and, when comparing its historical volatility, Formosa Chemicals Fibre is 1.11 times less risky than Hai Kwang. The stock trades about -0.29 of its potential returns per unit of risk. The Hai Kwang Enterprise is currently generating about -0.07 of returns per unit of risk over similar time horizon. If you would invest  1,750  in Hai Kwang Enterprise on September 26, 2024 and sell it today you would lose (180.00) from holding Hai Kwang Enterprise or give up 10.29% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.44%
Values	Daily Returns

Formosa Chemicals Fibre  vs.  Hai Kwang Enterprise

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.

Hai Kwang Enterprise

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hai Kwang Enterprise 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 Chemicals and Hai Kwang

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

The idea behind Formosa Chemicals Fibre and Hai Kwang Enterprise 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.