Correlation Between Sunplus Technology and Formosa International

Can any of the company-specific risk be diversified away by investing in both Sunplus Technology and Formosa International 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 Sunplus Technology and Formosa International into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Sunplus Technology Co and Formosa International Hotels, you can compare the effects of market volatilities on Sunplus Technology and Formosa International 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 Sunplus Technology with a short position of Formosa International. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sunplus Technology and Formosa International.

Diversification Opportunities for Sunplus Technology and Formosa International

-0.06

Correlation Coefficient

Sunplus Technology  Formosa International

Good diversification

The 3 months correlation between Sunplus and Formosa is -0.06. Overlapping area represents the amount of risk that can be diversified away by holding Sunplus Technology Co and Formosa International Hotels in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Formosa International and Sunplus Technology 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 Sunplus Technology Co are associated (or correlated) with Formosa International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Formosa International has no effect on the direction of Sunplus Technology i.e., Sunplus Technology and Formosa International go up and down completely randomly.

Pair Corralation between Sunplus Technology and Formosa International

Assuming the 90 days trading horizon Sunplus Technology Co is expected to under-perform the Formosa International. In addition to that, Sunplus Technology is 1.49 times more volatile than Formosa International Hotels. It trades about -0.09 of its total potential returns per unit of risk. Formosa International Hotels is currently generating about 0.17 per unit of volatility. If you would invest  19,100  in Formosa International Hotels on December 25, 2024 and sell it today you would earn a total of  2,250  from holding Formosa International Hotels or generate 11.78% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Sunplus Technology Co  vs.  Formosa International Hotels

Sunplus Technology

Risk-Adjusted Performance

Very Weak

Over the last 90 days Sunplus Technology Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Formosa International

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Formosa International Hotels are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Formosa International showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sunplus Technology and Formosa International

The main advantage of trading using opposite Sunplus Technology and Formosa International positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sunplus Technology position performs unexpectedly, Formosa International 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 International will offset losses from the drop in Formosa International's long position.

The idea behind Sunplus Technology Co and Formosa International Hotels 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.