Correlation Between Formosa Plastics and Formosa Optical

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Can any of the company-specific risk be diversified away by investing in both Formosa Plastics 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 Formosa Plastics and Formosa Optical into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Formosa Plastics Corp and Formosa Optical Technology, you can compare the effects of market volatilities on Formosa Plastics 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 Formosa Plastics with a short position of Formosa Optical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Formosa Plastics and Formosa Optical.

Diversification Opportunities for Formosa Plastics and Formosa Optical

FormosaFormosaDiversified AwayFormosaFormosaDiversified Away100%
-0.43
  Correlation Coefficient

Very good diversification

The 3 months correlation between Formosa and Formosa is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding Formosa Plastics Corp 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 Formosa Plastics 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 Plastics Corp 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 Formosa Plastics i.e., Formosa Plastics and Formosa Optical go up and down completely randomly.

Pair Corralation between Formosa Plastics and Formosa Optical

Assuming the 90 days trading horizon Formosa Plastics Corp is expected to under-perform the Formosa Optical. In addition to that, Formosa Plastics is 1.62 times more volatile than Formosa Optical Technology. It trades about -0.12 of its total potential returns per unit of risk. Formosa Optical Technology is currently generating about 0.29 per unit of volatility. If you would invest  10,600  in Formosa Optical Technology on November 18, 2024 and sell it today you would earn a total of  3,250  from holding Formosa Optical Technology or generate 30.66% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Formosa Plastics Corp  vs.  Formosa Optical Technology

 Performance 
JavaScript chart by amCharts 3.21.15Dec2025Feb -30-20-10010
JavaScript chart by amCharts 3.21.151301 5312
       Timeline  
Formosa Plastics Corp 

Risk-Adjusted Performance

Very Weak

 
Weak
 
Strong
Over the last 90 days Formosa Plastics Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in March 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.
JavaScript chart by amCharts 3.21.15DecJanFebJanFeb323436384042444648
Formosa Optical Tech 

Risk-Adjusted Performance

Solid

 
Weak
 
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in Formosa Optical Technology are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Formosa Optical showed solid returns over the last few months and may actually be approaching a breakup point.
JavaScript chart by amCharts 3.21.15DecJanFebJanFeb105110115120125130135

Formosa Plastics and Formosa Optical Volatility Contrast

   Predicted Return Density   
JavaScript chart by amCharts 3.21.15-4.55-3.41-2.27-1.12-0.01720.982.013.044.075.1 0.050.100.15
JavaScript chart by amCharts 3.21.151301 5312
       Returns  

Pair Trading with Formosa Plastics and Formosa Optical

The main advantage of trading using opposite Formosa Plastics and Formosa Optical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Formosa Plastics 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 Formosa Plastics Corp 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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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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.

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