Correlation Between Formosa International and CHO Pharma
Can any of the company-specific risk be diversified away by investing in both Formosa International and CHO Pharma 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 CHO Pharma 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 CHO Pharma, you can compare the effects of market volatilities on Formosa International and CHO Pharma 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 CHO Pharma. Check out your portfolio center. Please also check ongoing floating volatility patterns of Formosa International and CHO Pharma.
Diversification Opportunities for Formosa International and CHO Pharma
0.73 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Formosa and CHO is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Formosa International Hotels and CHO Pharma in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CHO Pharma 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 CHO Pharma. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CHO Pharma has no effect on the direction of Formosa International i.e., Formosa International and CHO Pharma go up and down completely randomly.
Pair Corralation between Formosa International and CHO Pharma
Assuming the 90 days trading horizon Formosa International Hotels is expected to generate 0.99 times more return on investment than CHO Pharma. However, Formosa International Hotels is 1.01 times less risky than CHO Pharma. It trades about 0.07 of its potential returns per unit of risk. CHO Pharma is currently generating about -0.11 per unit of risk. If you would invest 19,250 in Formosa International Hotels on October 25, 2024 and sell it today you would earn a total of 400.00 from holding Formosa International Hotels or generate 2.08% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.45% |
| Values | Daily Returns |
Formosa International Hotels vs. CHO Pharma
Performance |
| Timeline |
| Formosa International |
| CHO Pharma |
Formosa International and CHO Pharma Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Formosa International and CHO Pharma
The main advantage of trading using opposite Formosa International and CHO Pharma positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Formosa International position performs unexpectedly, CHO Pharma 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 CHO Pharma will offset losses from the drop in CHO Pharma's long position.| Formosa International vs. Tong Yang Industry | Formosa International vs. Ta Yih Industrial | Formosa International vs. Basso Industry Corp | Formosa International vs. China Motor Corp |
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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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.
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