Correlation Between Allied Industrial and Formosa Electronic
Can any of the company-specific risk be diversified away by investing in both Allied Industrial 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 Allied Industrial and Formosa Electronic into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Allied Industrial and Formosa Electronic Industries, you can compare the effects of market volatilities on Allied Industrial 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 Allied Industrial with a short position of Formosa Electronic. Check out your portfolio center. Please also check ongoing floating volatility patterns of Allied Industrial and Formosa Electronic.
Diversification Opportunities for Allied Industrial and Formosa Electronic
-0.25 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Allied and Formosa is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding Allied Industrial and Formosa Electronic Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Formosa Electronic and Allied Industrial 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 Allied Industrial 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 Allied Industrial i.e., Allied Industrial and Formosa Electronic go up and down completely randomly.
Pair Corralation between Allied Industrial and Formosa Electronic
Assuming the 90 days trading horizon Allied Industrial is expected to generate 27.45 times less return on investment than Formosa Electronic. But when comparing it to its historical volatility, Allied Industrial is 9.34 times less risky than Formosa Electronic. It trades about 0.07 of its potential returns per unit of risk. Formosa Electronic Industries is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest 3,390 in Formosa Electronic Industries on September 5, 2024 and sell it today you would earn a total of 790.00 from holding Formosa Electronic Industries or generate 23.3% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 95.65% |
| Values | Daily Returns |
Allied Industrial vs. Formosa Electronic Industries
Performance |
| Timeline |
| Allied Industrial |
| Formosa Electronic |
Allied Industrial and Formosa Electronic Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Allied Industrial and Formosa Electronic
The main advantage of trading using opposite Allied Industrial and Formosa Electronic positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Allied Industrial 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.| Allied Industrial vs. Formosa Electronic Industries | Allied Industrial vs. Taiwan Chinsan Electronic | Allied Industrial vs. SS Healthcare Holding | Allied Industrial vs. Lelon Electronics Corp |
| Formosa Electronic vs. Hon Hai Precision | Formosa Electronic vs. Delta Electronics | Formosa Electronic vs. LARGAN Precision Co | Formosa Electronic vs. AU Optronics |
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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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