Correlation Between Formosa Sumco and Radiant Opto
Can any of the company-specific risk be diversified away by investing in both Formosa Sumco and Radiant Opto 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 Sumco and Radiant Opto into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Formosa Sumco Technology and Radiant Opto Electronics Corp, you can compare the effects of market volatilities on Formosa Sumco and Radiant Opto 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 Sumco with a short position of Radiant Opto. Check out your portfolio center. Please also check ongoing floating volatility patterns of Formosa Sumco and Radiant Opto.
Diversification Opportunities for Formosa Sumco and Radiant Opto
-0.17 | Correlation Coefficient |
Good diversification
The 3 months correlation between Formosa and Radiant is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding Formosa Sumco Technology and Radiant Opto Electronics Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Radiant Opto Electro and Formosa Sumco 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 Sumco Technology are associated (or correlated) with Radiant Opto. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Radiant Opto Electro has no effect on the direction of Formosa Sumco i.e., Formosa Sumco and Radiant Opto go up and down completely randomly.
Pair Corralation between Formosa Sumco and Radiant Opto
Assuming the 90 days trading horizon Formosa Sumco Technology is expected to under-perform the Radiant Opto. But the stock apears to be less risky and, when comparing its historical volatility, Formosa Sumco Technology is 1.05 times less risky than Radiant Opto. The stock trades about -0.15 of its potential returns per unit of risk. The Radiant Opto Electronics Corp is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest 20,100 in Radiant Opto Electronics Corp on September 1, 2024 and sell it today you would lose (1,050) from holding Radiant Opto Electronics Corp or give up 5.22% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 99.22% |
| Values | Daily Returns |
Formosa Sumco Technology vs. Radiant Opto Electronics Corp
Performance |
| Timeline |
| Formosa Sumco Technology |
| Radiant Opto Electro |
Formosa Sumco and Radiant Opto Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Formosa Sumco and Radiant Opto
The main advantage of trading using opposite Formosa Sumco and Radiant Opto positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Formosa Sumco position performs unexpectedly, Radiant Opto 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 Radiant Opto will offset losses from the drop in Radiant Opto's long position.The idea behind Formosa Sumco Technology and Radiant Opto Electronics Corp pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.
Other Complementary Tools
| Idea Analyzer Analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas | |
| Premium Stories Follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope | |
| Technical Analysis Check basic technical indicators and analysis based on most latest market data | |
| Alpha Finder Use alpha and beta coefficients to find investment opportunities after accounting for the risk | |
| ETF Categories List of ETF categories grouped based on various criteria, such as the investment strategy or type of investments |