Correlation Between Formosa International and Alar Pharmaceuticals

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

Diversification Opportunities for Formosa International and Alar Pharmaceuticals

0.46

Correlation Coefficient

Formosa International  Alar Pharmaceuticals

Very weak diversification

The 3 months correlation between Formosa and Alar is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Formosa International Hotels and Alar Pharmaceuticals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alar Pharmaceuticals 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 Alar Pharmaceuticals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alar Pharmaceuticals has no effect on the direction of Formosa International i.e., Formosa International and Alar Pharmaceuticals go up and down completely randomly.

Pair Corralation between Formosa International and Alar Pharmaceuticals

Assuming the 90 days trading horizon Formosa International Hotels is expected to generate 0.38 times more return on investment than Alar Pharmaceuticals. However, Formosa International Hotels is 2.62 times less risky than Alar Pharmaceuticals. It trades about 0.13 of its potential returns per unit of risk. Alar Pharmaceuticals is currently generating about 0.04 per unit of risk. If you would invest  19,450  in Formosa International Hotels on December 22, 2024 and sell it today you would earn a total of  1,650  from holding Formosa International Hotels or generate 8.48% return on investment over 90 days.

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

Formosa International Hotels  vs.  Alar Pharmaceuticals

Formosa International

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Formosa International Hotels are ranked lower than 9 (%) 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.

Alar Pharmaceuticals

Risk-Adjusted Performance

Weak

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

Pair Trading with Formosa International and Alar Pharmaceuticals

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

The idea behind Formosa International Hotels and Alar Pharmaceuticals 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.

Check out your portfolio center.

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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.