Correlation Between Formosa Chemicals and Pou Chen

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

Diversification Opportunities for Formosa Chemicals and Pou Chen

-0.7

Correlation Coefficient

Formosa Chemicals  Pou Chen

Excellent diversification

The 3 months correlation between Formosa and Pou is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding Formosa Chemicals Fibre and Pou Chen Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pou Chen Corp 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 Pou Chen. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pou Chen Corp has no effect on the direction of Formosa Chemicals i.e., Formosa Chemicals and Pou Chen go up and down completely randomly.

Pair Corralation between Formosa Chemicals and Pou Chen

Assuming the 90 days trading horizon Formosa Chemicals Fibre is expected to under-perform the Pou Chen. In addition to that, Formosa Chemicals is 1.34 times more volatile than Pou Chen Corp. It trades about -0.15 of its total potential returns per unit of risk. Pou Chen Corp is currently generating about 0.19 per unit of volatility. If you would invest  3,450  in Pou Chen Corp on August 31, 2024 and sell it today you would earn a total of  665.00  from holding Pou Chen Corp or generate 19.28% return on investment over 90 days.

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

Formosa Chemicals Fibre  vs.  Pou Chen Corp

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 December 2024. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Pou Chen Corp

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Pou Chen Corp are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Pou Chen showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Formosa Chemicals and Pou Chen

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

The idea behind Formosa Chemicals Fibre and Pou Chen Corp 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.