Correlation Between Far EasTone and Formosa International
Can any of the company-specific risk be diversified away by investing in both Far EasTone and Formosa International 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 Far EasTone and Formosa International into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Far EasTone Telecommunications and Formosa International Hotels, you can compare the effects of market volatilities on Far EasTone and Formosa International 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 Far EasTone with a short position of Formosa International. Check out your portfolio center. Please also check ongoing floating volatility patterns of Far EasTone and Formosa International.
Diversification Opportunities for Far EasTone and Formosa International
0.32 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Far and Formosa is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Far EasTone Telecommunications and Formosa International Hotels in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Formosa International and Far EasTone 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 Far EasTone Telecommunications are associated (or correlated) with Formosa International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Formosa International has no effect on the direction of Far EasTone i.e., Far EasTone and Formosa International go up and down completely randomly.
Pair Corralation between Far EasTone and Formosa International
Assuming the 90 days trading horizon Far EasTone Telecommunications is expected to generate 0.64 times more return on investment than Formosa International. However, Far EasTone Telecommunications is 1.57 times less risky than Formosa International. It trades about 0.05 of its potential returns per unit of risk. Formosa International Hotels is currently generating about -0.03 per unit of risk. If you would invest 7,050 in Far EasTone Telecommunications on December 1, 2024 and sell it today you would earn a total of 1,940 from holding Far EasTone Telecommunications or generate 27.52% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Far EasTone Telecommunications vs. Formosa International Hotels
Performance |
| Timeline |
| Far EasTone Telecomm |
| Formosa International |
Far EasTone and Formosa International Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Far EasTone and Formosa International
The main advantage of trading using opposite Far EasTone and Formosa International positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Far EasTone position performs unexpectedly, Formosa International 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 International will offset losses from the drop in Formosa International's long position.| Far EasTone vs. Taiwan Mobile Co | Far EasTone vs. Chunghwa Telecom Co | Far EasTone vs. President Chain Store | Far EasTone vs. Formosa Petrochemical Corp |
| Formosa International vs. President Chain Store | Formosa International vs. Uni President Enterprises Corp | Formosa International vs. Ambassador Hotel | Formosa International vs. Hotai Motor Co |
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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.
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