Correlation Between Formosa International and Grand Plastic

Can any of the company-specific risk be diversified away by investing in both Formosa International and Grand Plastic 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 Grand Plastic 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 Grand Plastic Technology, you can compare the effects of market volatilities on Formosa International and Grand Plastic 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 Grand Plastic. Check out your portfolio center. Please also check ongoing floating volatility patterns of Formosa International and Grand Plastic.

Diversification Opportunities for Formosa International and Grand Plastic

-0.68

Correlation Coefficient

Formosa International  Grand Plastic

Excellent diversification

The 3 months correlation between Formosa and Grand is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding Formosa International Hotels and Grand Plastic Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Grand Plastic Technology 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 Grand Plastic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Grand Plastic Technology has no effect on the direction of Formosa International i.e., Formosa International and Grand Plastic go up and down completely randomly.

Pair Corralation between Formosa International and Grand Plastic

Assuming the 90 days trading horizon Formosa International Hotels is expected to generate 0.31 times more return on investment than Grand Plastic. However, Formosa International Hotels is 3.26 times less risky than Grand Plastic. It trades about 0.15 of its potential returns per unit of risk. Grand Plastic Technology is currently generating about -0.15 per unit of risk. If you would invest  18,950  in Formosa International Hotels on December 30, 2024 and sell it today you would earn a total of  1,950  from holding Formosa International Hotels or generate 10.29% return on investment over 90 days.

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

Formosa International Hotels  vs.  Grand Plastic Technology

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 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Formosa International may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Grand Plastic Technology

Risk-Adjusted Performance

Very Weak

Over the last 90 days Grand Plastic Technology 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 April 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Pair Trading with Formosa International and Grand Plastic

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

The idea behind Formosa International Hotels and Grand Plastic 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.