Correlation Between Formosa International and Lion Travel
Can any of the company-specific risk be diversified away by investing in both Formosa International and Lion Travel 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 International and Lion Travel into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Formosa International Hotels and Lion Travel Service, you can compare the effects of market volatilities on Formosa International and Lion Travel 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 International with a short position of Lion Travel. Check out your portfolio center. Please also check ongoing floating volatility patterns of Formosa International and Lion Travel.
Diversification Opportunities for Formosa International and Lion Travel
0.77 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Formosa and Lion is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Formosa International Hotels and Lion Travel Service in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lion Travel Service and Formosa International 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 International Hotels are associated (or correlated) with Lion Travel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lion Travel Service has no effect on the direction of Formosa International i.e., Formosa International and Lion Travel go up and down completely randomly.
Pair Corralation between Formosa International and Lion Travel
Assuming the 90 days trading horizon Formosa International Hotels is expected to under-perform the Lion Travel. But the stock apears to be less risky and, when comparing its historical volatility, Formosa International Hotels is 1.32 times less risky than Lion Travel. The stock trades about -0.02 of its potential returns per unit of risk. The Lion Travel Service is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest 10,150 in Lion Travel Service on September 3, 2024 and sell it today you would earn a total of 2,000 from holding Lion Travel Service or generate 19.7% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Formosa International Hotels vs. Lion Travel Service
Performance |
| Timeline |
| Formosa International |
| Lion Travel Service |
Formosa International and Lion Travel Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Formosa International and Lion Travel
The main advantage of trading using opposite Formosa International and Lion Travel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Formosa International position performs unexpectedly, Lion Travel 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 Lion Travel will offset losses from the drop in Lion Travel's long position.| Formosa International vs. Tainan Spinning Co | Formosa International vs. Chia Her Industrial | Formosa International vs. WiseChip Semiconductor | Formosa International vs. Novatek Microelectronics Corp |
| Lion Travel vs. Tainan Spinning Co | Lion Travel vs. Chia Her Industrial | Lion Travel vs. WiseChip Semiconductor | Lion Travel vs. Novatek Microelectronics Corp |
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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.
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