Correlation Between Formosan Union and Phoenix Silicon

Can any of the company-specific risk be diversified away by investing in both Formosan Union and Phoenix Silicon 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 Formosan Union and Phoenix Silicon into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Formosan Union Chemical and Phoenix Silicon International, you can compare the effects of market volatilities on Formosan Union and Phoenix Silicon 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 Formosan Union with a short position of Phoenix Silicon. Check out your portfolio center. Please also check ongoing floating volatility patterns of Formosan Union and Phoenix Silicon.

Diversification Opportunities for Formosan Union and Phoenix Silicon

-0.41

Correlation Coefficient

Formosan Union  Phoenix Silicon

Very good diversification

The 3 months correlation between Formosan and Phoenix is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding Formosan Union Chemical and Phoenix Silicon International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Phoenix Silicon Inte and Formosan Union 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 Formosan Union Chemical are associated (or correlated) with Phoenix Silicon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Phoenix Silicon Inte has no effect on the direction of Formosan Union i.e., Formosan Union and Phoenix Silicon go up and down completely randomly.

Pair Corralation between Formosan Union and Phoenix Silicon

Assuming the 90 days trading horizon Formosan Union Chemical is expected to generate 0.22 times more return on investment than Phoenix Silicon. However, Formosan Union Chemical is 4.55 times less risky than Phoenix Silicon. It trades about -0.2 of its potential returns per unit of risk. Phoenix Silicon International is currently generating about -0.06 per unit of risk. If you would invest  2,185  in Formosan Union Chemical on September 16, 2024 and sell it today you would lose (80.00) from holding Formosan Union Chemical or give up 3.66% of portfolio value over 90 days.

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

Formosan Union Chemical  vs.  Phoenix Silicon International

Formosan Union Chemical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Formosan Union Chemical 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.

Phoenix Silicon Inte

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Phoenix Silicon International has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Phoenix Silicon 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 Formosan Union and Phoenix Silicon

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

The idea behind Formosan Union Chemical and Phoenix Silicon International 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.

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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.