Correlation Between Formosa Optical and Chi Sheng
Can any of the company-specific risk be diversified away by investing in both Formosa Optical and Chi Sheng 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 Optical and Chi Sheng into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Formosa Optical Technology and Chi Sheng Chemical, you can compare the effects of market volatilities on Formosa Optical and Chi Sheng 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 Optical with a short position of Chi Sheng. Check out your portfolio center. Please also check ongoing floating volatility patterns of Formosa Optical and Chi Sheng.
Diversification Opportunities for Formosa Optical and Chi Sheng
0.61 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Formosa and Chi is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Formosa Optical Technology and Chi Sheng Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chi Sheng Chemical and Formosa Optical 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 Optical Technology are associated (or correlated) with Chi Sheng. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chi Sheng Chemical has no effect on the direction of Formosa Optical i.e., Formosa Optical and Chi Sheng go up and down completely randomly.
Pair Corralation between Formosa Optical and Chi Sheng
Assuming the 90 days trading horizon Formosa Optical Technology is expected to generate 1.83 times more return on investment than Chi Sheng. However, Formosa Optical is 1.83 times more volatile than Chi Sheng Chemical. It trades about 0.18 of its potential returns per unit of risk. Chi Sheng Chemical is currently generating about 0.21 per unit of risk. If you would invest 10,200 in Formosa Optical Technology on August 26, 2024 and sell it today you would earn a total of 450.00 from holding Formosa Optical Technology or generate 4.41% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Formosa Optical Technology vs. Chi Sheng Chemical
Performance |
| Timeline |
| Formosa Optical Tech |
| Chi Sheng Chemical |
Formosa Optical and Chi Sheng Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Formosa Optical and Chi Sheng
The main advantage of trading using opposite Formosa Optical and Chi Sheng positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Formosa Optical position performs unexpectedly, Chi Sheng 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 Chi Sheng will offset losses from the drop in Chi Sheng's long position.| Formosa Optical vs. Taiwan Semiconductor Manufacturing | Formosa Optical vs. Hon Hai Precision | Formosa Optical vs. MediaTek | Formosa Optical vs. Chunghwa Telecom Co |
| Chi Sheng vs. StShine Optical Co | Chi Sheng vs. Bioteque | Chi Sheng vs. Medeon Biodesign | Chi Sheng vs. SciVision Biotech |
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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.
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