Correlation Between Formosa Plastics and Formosa Optical
Can any of the company-specific risk be diversified away by investing in both Formosa Plastics and Formosa Optical 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 Plastics and Formosa Optical into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Formosa Plastics Corp and Formosa Optical Technology, you can compare the effects of market volatilities on Formosa Plastics and Formosa Optical 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 Plastics with a short position of Formosa Optical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Formosa Plastics and Formosa Optical.
Diversification Opportunities for Formosa Plastics and Formosa Optical
-0.69 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Formosa and Formosa is -0.69. Overlapping area represents the amount of risk that can be diversified away by holding Formosa Plastics Corp and Formosa Optical Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Formosa Optical Tech and Formosa Plastics 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 Plastics Corp are associated (or correlated) with Formosa Optical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Formosa Optical Tech has no effect on the direction of Formosa Plastics i.e., Formosa Plastics and Formosa Optical go up and down completely randomly.
Pair Corralation between Formosa Plastics and Formosa Optical
Assuming the 90 days trading horizon Formosa Plastics Corp is expected to under-perform the Formosa Optical. In addition to that, Formosa Plastics is 3.81 times more volatile than Formosa Optical Technology. It trades about -0.04 of its total potential returns per unit of risk. Formosa Optical Technology is currently generating about 0.13 per unit of volatility. If you would invest 10,850 in Formosa Optical Technology on October 25, 2024 and sell it today you would earn a total of 250.00 from holding Formosa Optical Technology or generate 2.3% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Formosa Plastics Corp vs. Formosa Optical Technology
Performance |
| Timeline |
| Formosa Plastics Corp |
| Formosa Optical Tech |
Formosa Plastics and Formosa Optical Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Formosa Plastics and Formosa Optical
The main advantage of trading using opposite Formosa Plastics and Formosa Optical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Formosa Plastics position performs unexpectedly, Formosa Optical 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 Optical will offset losses from the drop in Formosa Optical's long position.| Formosa Plastics vs. Nan Ya Plastics | Formosa Plastics vs. Formosa Chemicals Fibre | Formosa Plastics vs. China Steel Corp | Formosa Plastics vs. Formosa Petrochemical Corp |
| Formosa Optical vs. Quintain Steel Co | Formosa Optical vs. Tung Ho Steel | Formosa Optical vs. GeneFerm Biotechnology Co | Formosa Optical vs. Genovate Biotechnology Co |
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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.
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