Correlation Between First Hotel and Formosa International
Can any of the company-specific risk be diversified away by investing in both First Hotel and Formosa International 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 First Hotel and Formosa International into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between First Hotel Co and Formosa International Hotels, you can compare the effects of market volatilities on First Hotel and Formosa International 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 First Hotel with a short position of Formosa International. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Hotel and Formosa International.
Diversification Opportunities for First Hotel and Formosa International
0.87 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between First and Formosa is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding First Hotel Co and Formosa International Hotels in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Formosa International and First Hotel 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 First Hotel Co are associated (or correlated) with Formosa International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Formosa International has no effect on the direction of First Hotel i.e., First Hotel and Formosa International go up and down completely randomly.
Pair Corralation between First Hotel and Formosa International
Assuming the 90 days trading horizon First Hotel is expected to generate 1.44 times less return on investment than Formosa International. But when comparing it to its historical volatility, First Hotel Co is 1.85 times less risky than Formosa International. It trades about 0.16 of its potential returns per unit of risk. Formosa International Hotels is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest 19,100 in Formosa International Hotels on November 5, 2024 and sell it today you would earn a total of 550.00 from holding Formosa International Hotels or generate 2.88% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
First Hotel Co vs. Formosa International Hotels
Performance |
| Timeline |
| First Hotel |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
| Formosa International |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
First Hotel and Formosa International Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with First Hotel and Formosa International
The main advantage of trading using opposite First Hotel and Formosa International positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Hotel position performs unexpectedly, Formosa International 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 International will offset losses from the drop in Formosa International's long position.The idea behind First Hotel Co and Formosa International Hotels 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.
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