Correlation Between Shin Kong and Formosa Optical
Can any of the company-specific risk be diversified away by investing in both Shin Kong 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 Shin Kong and Formosa Optical into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Shin Kong Financial and Formosa Optical Technology, you can compare the effects of market volatilities on Shin Kong 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 Shin Kong with a short position of Formosa Optical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shin Kong and Formosa Optical.
Diversification Opportunities for Shin Kong and Formosa Optical
-0.61 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Shin and Formosa is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding Shin Kong Financial 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 Shin Kong 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 Shin Kong Financial 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 Shin Kong i.e., Shin Kong and Formosa Optical go up and down completely randomly.
Pair Corralation between Shin Kong and Formosa Optical
Assuming the 90 days trading horizon Shin Kong is expected to generate 3.06 times less return on investment than Formosa Optical. But when comparing it to its historical volatility, Shin Kong Financial is 1.65 times less risky than Formosa Optical. It trades about 0.14 of its potential returns per unit of risk. Formosa Optical Technology is currently generating about 0.27 of returns per unit of risk over similar time horizon. If you would invest 10,100 in Formosa Optical Technology on September 2, 2024 and sell it today you would earn a total of 700.00 from holding Formosa Optical Technology or generate 6.93% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Shin Kong Financial vs. Formosa Optical Technology
Performance |
| Timeline |
| Shin Kong Financial |
| Formosa Optical Tech |
Shin Kong and Formosa Optical Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Shin Kong and Formosa Optical
The main advantage of trading using opposite Shin Kong and Formosa Optical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Shin Kong 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.| Shin Kong vs. Central Reinsurance Corp | Shin Kong vs. Huaku Development Co | Shin Kong vs. Fubon Financial Holding |
| Formosa Optical vs. Shan Loong Transportation Co | Formosa Optical vs. Roundtop Machinery Industries | Formosa Optical vs. Asia Metal Industries | Formosa Optical vs. Chernan Metal Industrial |
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 Global Correlations module to find global opportunities by holding instruments from different markets.
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