Correlation Between CTBC Financial and Formosa Optical
Can any of the company-specific risk be diversified away by investing in both CTBC Financial 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 CTBC Financial and Formosa Optical into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between CTBC Financial Holding and Formosa Optical Technology, you can compare the effects of market volatilities on CTBC Financial 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 CTBC Financial with a short position of Formosa Optical. Check out your portfolio center. Please also check ongoing floating volatility patterns of CTBC Financial and Formosa Optical.
Diversification Opportunities for CTBC Financial and Formosa Optical
0.65 | Correlation Coefficient |
Poor diversification
The 3 months correlation between CTBC and Formosa is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding CTBC Financial Holding 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 CTBC Financial 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 CTBC Financial Holding 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 CTBC Financial i.e., CTBC Financial and Formosa Optical go up and down completely randomly.
Pair Corralation between CTBC Financial and Formosa Optical
Assuming the 90 days trading horizon CTBC Financial is expected to generate 17.77 times less return on investment than Formosa Optical. But when comparing it to its historical volatility, CTBC Financial Holding is 6.03 times less risky than Formosa Optical. It trades about 0.05 of its potential returns per unit of risk. Formosa Optical Technology is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest 5,789 in Formosa Optical Technology on November 28, 2024 and sell it today you would earn a total of 8,511 from holding Formosa Optical Technology or generate 147.02% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
CTBC Financial Holding vs. Formosa Optical Technology
Performance |
| Timeline |
| CTBC Financial Holding |
| Formosa Optical Tech |
CTBC Financial and Formosa Optical Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with CTBC Financial and Formosa Optical
The main advantage of trading using opposite CTBC Financial and Formosa Optical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CTBC Financial 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.| CTBC Financial vs. Ocean Plastics Co | CTBC Financial vs. Kedge Construction Co | CTBC Financial vs. Advanced Echem Materials | CTBC Financial vs. U Ming Marine Transport |
| Formosa Optical vs. U Tech Media Corp | Formosa Optical vs. Softstar Entertainment | Formosa Optical vs. FarGlory Hotel Co | Formosa Optical vs. Hotel Holiday Garden |
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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.
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