Correlation Between S Tech and Formosa Laboratories
Can any of the company-specific risk be diversified away by investing in both S Tech and Formosa Laboratories 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 S Tech and Formosa Laboratories into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between S Tech Corp and Formosa Laboratories, you can compare the effects of market volatilities on S Tech and Formosa Laboratories 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 S Tech with a short position of Formosa Laboratories. Check out your portfolio center. Please also check ongoing floating volatility patterns of S Tech and Formosa Laboratories.
Diversification Opportunities for S Tech and Formosa Laboratories
0.66 | Correlation Coefficient |
Poor diversification
The 3 months correlation between 1584 and Formosa is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding S Tech Corp and Formosa Laboratories in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Formosa Laboratories and S Tech 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 S Tech Corp are associated (or correlated) with Formosa Laboratories. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Formosa Laboratories has no effect on the direction of S Tech i.e., S Tech and Formosa Laboratories go up and down completely randomly.
Pair Corralation between S Tech and Formosa Laboratories
Assuming the 90 days trading horizon S Tech Corp is expected to generate 0.9 times more return on investment than Formosa Laboratories. However, S Tech Corp is 1.11 times less risky than Formosa Laboratories. It trades about 0.05 of its potential returns per unit of risk. Formosa Laboratories is currently generating about 0.03 per unit of risk. If you would invest 2,056 in S Tech Corp on September 4, 2024 and sell it today you would earn a total of 1,074 from holding S Tech Corp or generate 52.24% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
S Tech Corp vs. Formosa Laboratories
Performance |
| Timeline |
| S Tech Corp |
| Formosa Laboratories |
S Tech and Formosa Laboratories Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with S Tech and Formosa Laboratories
The main advantage of trading using opposite S Tech and Formosa Laboratories positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if S Tech position performs unexpectedly, Formosa Laboratories 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 Laboratories will offset losses from the drop in Formosa Laboratories' long position.| S Tech vs. Catcher Technology Co | S Tech vs. Evergreen Steel Corp | S Tech vs. China Metal Products | S Tech vs. Chernan Metal Industrial |
| Formosa Laboratories vs. Adimmune Corp | Formosa Laboratories vs. Chunghwa Chemical Synthesis | Formosa Laboratories vs. SCI Pharmtech | Formosa Laboratories vs. Grape King Bio |
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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.
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