Correlation Between Everlight Chemical and Formosan Union

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

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

Diversification Opportunities for Everlight Chemical and Formosan Union

0.92

Correlation Coefficient

Everlight Chemical  Formosan Union

Almost no diversification

The 3 months correlation between Everlight and Formosan is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Everlight Chemical Industrial and Formosan Union Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Formosan Union Chemical and Everlight Chemical 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 Everlight Chemical Industrial are associated (or correlated) with Formosan Union. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Formosan Union Chemical has no effect on the direction of Everlight Chemical i.e., Everlight Chemical and Formosan Union go up and down completely randomly.

Pair Corralation between Everlight Chemical and Formosan Union

Assuming the 90 days trading horizon Everlight Chemical Industrial is expected to generate 1.38 times more return on investment than Formosan Union. However, Everlight Chemical is 1.38 times more volatile than Formosan Union Chemical. It trades about 0.03 of its potential returns per unit of risk. Formosan Union Chemical is currently generating about 0.01 per unit of risk. If you would invest  1,965  in Everlight Chemical Industrial on September 17, 2024 and sell it today you would earn a total of  195.00  from holding Everlight Chemical Industrial or generate 9.92% return on investment over 90 days.

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

Everlight Chemical Industrial  vs.  Formosan Union Chemical

Everlight Chemical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Everlight Chemical Industrial 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.

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.

Pair Trading with Everlight Chemical and Formosan Union

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

The idea behind Everlight Chemical Industrial and Formosan Union Chemical 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.