Correlation Between Formosa Petrochemical and Nan Pao
Can any of the company-specific risk be diversified away by investing in both Formosa Petrochemical and Nan Pao 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 Petrochemical and Nan Pao into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Formosa Petrochemical Corp and Nan Pao Resins, you can compare the effects of market volatilities on Formosa Petrochemical and Nan Pao 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 Petrochemical with a short position of Nan Pao. Check out your portfolio center. Please also check ongoing floating volatility patterns of Formosa Petrochemical and Nan Pao.
Diversification Opportunities for Formosa Petrochemical and Nan Pao
-0.52 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Formosa and Nan is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding Formosa Petrochemical Corp and Nan Pao Resins in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nan Pao Resins and Formosa Petrochemical 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 Petrochemical Corp are associated (or correlated) with Nan Pao. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nan Pao Resins has no effect on the direction of Formosa Petrochemical i.e., Formosa Petrochemical and Nan Pao go up and down completely randomly.
Pair Corralation between Formosa Petrochemical and Nan Pao
Assuming the 90 days trading horizon Formosa Petrochemical Corp is expected to under-perform the Nan Pao. But the stock apears to be less risky and, when comparing its historical volatility, Formosa Petrochemical Corp is 1.06 times less risky than Nan Pao. The stock trades about -0.18 of its potential returns per unit of risk. The Nan Pao Resins is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest 29,600 in Nan Pao Resins on September 12, 2024 and sell it today you would earn a total of 2,600 from holding Nan Pao Resins or generate 8.78% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Against |
Strength | Very Weak |
Accuracy | 100.0% |
Values | Daily Returns |
Formosa Petrochemical Corp vs. Nan Pao Resins
Performance |
Timeline |
Formosa Petrochemical |
Nan Pao Resins |
Formosa Petrochemical and Nan Pao Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Formosa Petrochemical and Nan Pao
The main advantage of trading using opposite Formosa Petrochemical and Nan Pao positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Formosa Petrochemical position performs unexpectedly, Nan Pao 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 Nan Pao will offset losses from the drop in Nan Pao's long position.Formosa Petrochemical vs. President Chain Store | Formosa Petrochemical vs. Huaku Development Co | Formosa Petrochemical vs. Formosa International Hotels | Formosa Petrochemical vs. Taiwan Fu Hsing |
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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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.
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