Correlation Between Provision Information and Formosa Optical
Can any of the company-specific risk be diversified away by investing in both Provision Information and Formosa Optical 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 Provision Information and Formosa Optical into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Provision Information CoLtd and Formosa Optical Technology, you can compare the effects of market volatilities on Provision Information and Formosa Optical 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 Provision Information with a short position of Formosa Optical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Provision Information and Formosa Optical.
Diversification Opportunities for Provision Information and Formosa Optical
-0.14 | Correlation Coefficient |
Good diversification
The 3 months correlation between Provision and Formosa is -0.14. Overlapping area represents the amount of risk that can be diversified away by holding Provision Information CoLtd and Formosa Optical Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Formosa Optical Tech and Provision Information 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 Provision Information CoLtd are associated (or correlated) with Formosa Optical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Formosa Optical Tech has no effect on the direction of Provision Information i.e., Provision Information and Formosa Optical go up and down completely randomly.
Pair Corralation between Provision Information and Formosa Optical
Assuming the 90 days trading horizon Provision Information CoLtd is expected to under-perform the Formosa Optical. But the stock apears to be less risky and, when comparing its historical volatility, Provision Information CoLtd is 1.12 times less risky than Formosa Optical. The stock trades about -0.02 of its potential returns per unit of risk. The Formosa Optical Technology is currently generating about 0.27 of returns per unit of risk over similar time horizon. If you would invest 10,100 in Formosa Optical Technology on September 2, 2024 and sell it today you would earn a total of 700.00 from holding Formosa Optical Technology or generate 6.93% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Provision Information CoLtd vs. Formosa Optical Technology
Performance |
| Timeline |
| Provision Information |
| Formosa Optical Tech |
Provision Information and Formosa Optical Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Provision Information and Formosa Optical
The main advantage of trading using opposite Provision Information and Formosa Optical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Provision Information position performs unexpectedly, Formosa Optical 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 Optical will offset losses from the drop in Formosa Optical's long position.The idea behind Provision Information CoLtd and Formosa Optical 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.
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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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.
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