Correlation Between Formosa Sumco and Powertech Technology
Can any of the company-specific risk be diversified away by investing in both Formosa Sumco and Powertech Technology 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 Powertech Technology 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 Powertech Technology, you can compare the effects of market volatilities on Formosa Sumco and Powertech Technology 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 Powertech Technology. Check out your portfolio center. Please also check ongoing floating volatility patterns of Formosa Sumco and Powertech Technology.
Diversification Opportunities for Formosa Sumco and Powertech Technology
0.93 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Formosa and Powertech is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Formosa Sumco Technology and Powertech Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Powertech Technology 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 Powertech Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Powertech Technology has no effect on the direction of Formosa Sumco i.e., Formosa Sumco and Powertech Technology go up and down completely randomly.
Pair Corralation between Formosa Sumco and Powertech Technology
Assuming the 90 days trading horizon Formosa Sumco Technology is expected to under-perform the Powertech Technology. But the stock apears to be less risky and, when comparing its historical volatility, Formosa Sumco Technology is 1.15 times less risky than Powertech Technology. The stock trades about -0.15 of its potential returns per unit of risk. The Powertech Technology is currently generating about -0.13 of returns per unit of risk over similar time horizon. If you would invest 18,200 in Powertech Technology on September 1, 2024 and sell it today you would lose (5,950) from holding Powertech Technology or give up 32.69% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 99.22% |
| Values | Daily Returns |
Formosa Sumco Technology vs. Powertech Technology
Performance |
| Timeline |
| Formosa Sumco Technology |
| Powertech Technology |
Formosa Sumco and Powertech Technology Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Formosa Sumco and Powertech Technology
The main advantage of trading using opposite Formosa Sumco and Powertech Technology positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Formosa Sumco position performs unexpectedly, Powertech Technology 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 Powertech Technology will offset losses from the drop in Powertech Technology's long position.The idea behind Formosa Sumco Technology and Powertech Technology 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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