Correlation Between Formosa International and Sporton International

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

Diversification Opportunities for Formosa International and Sporton International

0.88

Correlation Coefficient

Formosa International  Sporton International

Very poor diversification

The 3 months correlation between Formosa and Sporton is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Formosa International Hotels and Sporton International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sporton 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 Sporton International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sporton International has no effect on the direction of Formosa International i.e., Formosa International and Sporton International go up and down completely randomly.

Pair Corralation between Formosa International and Sporton International

Assuming the 90 days trading horizon Formosa International Hotels is expected to under-perform the Sporton International. But the stock apears to be less risky and, when comparing its historical volatility, Formosa International Hotels is 1.19 times less risky than Sporton International. The stock trades about -0.02 of its potential returns per unit of risk. The Sporton International is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  22,300  in Sporton International on October 8, 2024 and sell it today you would lose (2,100) from holding Sporton International or give up 9.42% of portfolio value over 90 days.

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

Formosa International Hotels  vs.  Sporton International

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.

Sporton International

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Formosa International and Sporton International

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

The idea behind Formosa International Hotels and Sporton International 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.