Correlation Between YuantaP Shares and Formosan Rubber

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

By analyzing existing cross correlation between YuantaP shares Taiwan Top and Formosan Rubber Group, you can compare the effects of market volatilities on YuantaP Shares and Formosan Rubber 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 YuantaP Shares with a short position of Formosan Rubber. Check out your portfolio center. Please also check ongoing floating volatility patterns of YuantaP Shares and Formosan Rubber.

Diversification Opportunities for YuantaP Shares and Formosan Rubber

0.7

Correlation Coefficient

YuantaP Shares  Formosan Rubber

Poor diversification

The 3 months correlation between YuantaP and Formosan is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding YuantaP shares Taiwan Top and Formosan Rubber Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Formosan Rubber Group and YuantaP Shares 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 YuantaP shares Taiwan Top are associated (or correlated) with Formosan Rubber. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Formosan Rubber Group has no effect on the direction of YuantaP Shares i.e., YuantaP Shares and Formosan Rubber go up and down completely randomly.

Pair Corralation between YuantaP Shares and Formosan Rubber

Assuming the 90 days trading horizon YuantaP shares Taiwan Top is expected to generate 1.23 times more return on investment than Formosan Rubber. However, YuantaP Shares is 1.23 times more volatile than Formosan Rubber Group. It trades about 0.16 of its potential returns per unit of risk. Formosan Rubber Group is currently generating about 0.16 per unit of risk. If you would invest  14,695  in YuantaP shares Taiwan Top on March 2, 2024 and sell it today you would earn a total of  1,905  from holding YuantaP shares Taiwan Top or generate 12.96% return on investment over 90 days.

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

YuantaP shares Taiwan Top  vs.  Formosan Rubber Group

YuantaP shares Taiwan

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in YuantaP shares Taiwan Top are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, YuantaP Shares showed solid returns over the last few months and may actually be approaching a breakup point.

Formosan Rubber Group

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Formosan Rubber Group are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Formosan Rubber may actually be approaching a critical reversion point that can send shares even higher in July 2024.

Pair Trading with YuantaP Shares and Formosan Rubber

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

The idea behind YuantaP shares Taiwan Top and Formosan Rubber Group 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.