Correlation Between Formosa International and TOPBI International

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

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

Diversification Opportunities for Formosa International and TOPBI International

-0.39

Correlation Coefficient

Formosa International  TOPBI International

Very good diversification

The 3 months correlation between Formosa and TOPBI is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding Formosa International Hotels and TOPBI International Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TOPBI International and Formosa International 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 International Hotels are associated (or correlated) with TOPBI International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TOPBI International has no effect on the direction of Formosa International i.e., Formosa International and TOPBI International go up and down completely randomly.

Pair Corralation between Formosa International and TOPBI International

Assuming the 90 days trading horizon Formosa International Hotels is expected to under-perform the TOPBI International. But the stock apears to be less risky and, when comparing its historical volatility, Formosa International Hotels is 3.17 times less risky than TOPBI International. The stock trades about -0.06 of its potential returns per unit of risk. The TOPBI International Holdings is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  944.00  in TOPBI International Holdings on October 22, 2024 and sell it today you would earn a total of  371.00  from holding TOPBI International Holdings or generate 39.3% return on investment over 90 days.

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

Formosa International Hotels  vs.  TOPBI International Holdings

Formosa International

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Formosa International Hotels has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Formosa International is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

TOPBI International

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in TOPBI International Holdings are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, TOPBI International may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Formosa International and TOPBI International

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

The idea behind Formosa International Hotels and TOPBI International Holdings 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.