Correlation Between ABC Taiwan and Formosa Electronic
Can any of the company-specific risk be diversified away by investing in both ABC Taiwan and Formosa Electronic 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 ABC Taiwan and Formosa Electronic into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between ABC Taiwan Electronics and Formosa Electronic Industries, you can compare the effects of market volatilities on ABC Taiwan and Formosa Electronic 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 ABC Taiwan with a short position of Formosa Electronic. Check out your portfolio center. Please also check ongoing floating volatility patterns of ABC Taiwan and Formosa Electronic.
Diversification Opportunities for ABC Taiwan and Formosa Electronic
0.42 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between ABC and Formosa is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding ABC Taiwan Electronics and Formosa Electronic Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Formosa Electronic and ABC Taiwan 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 ABC Taiwan Electronics are associated (or correlated) with Formosa Electronic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Formosa Electronic has no effect on the direction of ABC Taiwan i.e., ABC Taiwan and Formosa Electronic go up and down completely randomly.
Pair Corralation between ABC Taiwan and Formosa Electronic
Assuming the 90 days trading horizon ABC Taiwan Electronics is expected to generate 0.76 times more return on investment than Formosa Electronic. However, ABC Taiwan Electronics is 1.32 times less risky than Formosa Electronic. It trades about -0.02 of its potential returns per unit of risk. Formosa Electronic Industries is currently generating about -0.03 per unit of risk. If you would invest 2,545 in ABC Taiwan Electronics on November 19, 2024 and sell it today you would lose (560.00) from holding ABC Taiwan Electronics or give up 22.0% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
ABC Taiwan Electronics vs. Formosa Electronic Industries
Performance |
| Timeline |
| ABC Taiwan Electronics |
| Formosa Electronic |
ABC Taiwan and Formosa Electronic Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with ABC Taiwan and Formosa Electronic
The main advantage of trading using opposite ABC Taiwan and Formosa Electronic positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ABC Taiwan position performs unexpectedly, Formosa Electronic 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 Electronic will offset losses from the drop in Formosa Electronic's long position.| ABC Taiwan vs. Bright Led Electronics | ABC Taiwan vs. Farglory FTZ Investment | ABC Taiwan vs. Hi Sharp Electronics | ABC Taiwan vs. Rafael Microelectronics |
| Formosa Electronic vs. Info Tek | Formosa Electronic vs. Gallant Precision Machining | Formosa Electronic vs. Walton Advanced Engineering | Formosa Electronic vs. Cheng Mei Materials |
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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.
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