Correlation Between Formosa Electronic and Leader Electronics
Can any of the company-specific risk be diversified away by investing in both Formosa Electronic and Leader Electronics 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 Electronic and Leader Electronics into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Formosa Electronic Industries and Leader Electronics, you can compare the effects of market volatilities on Formosa Electronic and Leader Electronics 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 Electronic with a short position of Leader Electronics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Formosa Electronic and Leader Electronics.
Diversification Opportunities for Formosa Electronic and Leader Electronics
-0.02 | Correlation Coefficient |
Good diversification
The 3 months correlation between Formosa and Leader is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding Formosa Electronic Industries and Leader Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Leader Electronics and Formosa Electronic 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 Electronic Industries are associated (or correlated) with Leader Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Leader Electronics has no effect on the direction of Formosa Electronic i.e., Formosa Electronic and Leader Electronics go up and down completely randomly.
Pair Corralation between Formosa Electronic and Leader Electronics
Assuming the 90 days trading horizon Formosa Electronic Industries is expected to generate 2.41 times more return on investment than Leader Electronics. However, Formosa Electronic is 2.41 times more volatile than Leader Electronics. It trades about 0.35 of its potential returns per unit of risk. Leader Electronics is currently generating about -0.15 per unit of risk. If you would invest 3,450 in Formosa Electronic Industries on August 30, 2024 and sell it today you would earn a total of 1,170 from holding Formosa Electronic Industries or generate 33.91% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Formosa Electronic Industries vs. Leader Electronics
Performance |
| Timeline |
| Formosa Electronic |
| Leader Electronics |
Formosa Electronic and Leader Electronics Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Formosa Electronic and Leader Electronics
The main advantage of trading using opposite Formosa Electronic and Leader Electronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Formosa Electronic position performs unexpectedly, Leader Electronics 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 Leader Electronics will offset losses from the drop in Leader Electronics' long position.| Formosa Electronic vs. Info Tek | Formosa Electronic vs. Gallant Precision Machining | Formosa Electronic vs. Walton Advanced Engineering | Formosa Electronic vs. Cheng Mei Materials |
| Leader Electronics vs. Yulon Motor Co | Leader Electronics vs. Far Eastern Department | Leader Electronics vs. China Steel Corp | Leader Electronics vs. Chang Hwa Commercial |
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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.
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