Correlation Between Great China and Formosa Optical
Can any of the company-specific risk be diversified away by investing in both Great China 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 Great China and Formosa Optical into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Great China Metal and Formosa Optical Technology, you can compare the effects of market volatilities on Great China 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 Great China with a short position of Formosa Optical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Great China and Formosa Optical.
Diversification Opportunities for Great China and Formosa Optical
-0.09 | Correlation Coefficient |
Good diversification
The 3 months correlation between Great and Formosa is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding Great China Metal 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 Great China 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 Great China Metal 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 Great China i.e., Great China and Formosa Optical go up and down completely randomly.
Pair Corralation between Great China and Formosa Optical
Assuming the 90 days trading horizon Great China Metal is expected to generate 0.41 times more return on investment than Formosa Optical. However, Great China Metal is 2.41 times less risky than Formosa Optical. It trades about 0.04 of its potential returns per unit of risk. Formosa Optical Technology is currently generating about -0.15 per unit of risk. If you would invest 2,295 in Great China Metal on October 7, 2024 and sell it today you would earn a total of 5.00 from holding Great China Metal or generate 0.22% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Great China Metal vs. Formosa Optical Technology
Performance |
| Timeline |
| Great China Metal |
| Formosa Optical Tech |
Great China and Formosa Optical Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Great China and Formosa Optical
The main advantage of trading using opposite Great China and Formosa Optical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Great China 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.| Great China vs. Taiwan Hon Chuan | Great China vs. Taiwan Secom Co | Great China vs. Taiwan Fu Hsing | Great China vs. Taiwan Shin Kong |
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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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.
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