Correlation Between Hai Kwang and Formosa Chemicals

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

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

Diversification Opportunities for Hai Kwang and Formosa Chemicals

0.9

Correlation Coefficient

Hai Kwang  Formosa Chemicals

Almost no diversification

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

Pair Corralation between Hai Kwang and Formosa Chemicals

Assuming the 90 days trading horizon Hai Kwang Enterprise is expected to generate 1.11 times more return on investment than Formosa Chemicals. However, Hai Kwang is 1.11 times more volatile than Formosa Chemicals Fibre. It trades about -0.07 of its potential returns per unit of risk. Formosa Chemicals Fibre is currently generating about -0.29 per unit of risk. 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

Hai Kwang Enterprise  vs.  Formosa Chemicals Fibre

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.

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.

Pair Trading with Hai Kwang and Formosa Chemicals

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

The idea behind Hai Kwang Enterprise and Formosa Chemicals Fibre 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.