Correlation Between Formosa International and Great China
Can any of the company-specific risk be diversified away by investing in both Formosa International and Great China 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 Great China 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 Great China Metal, you can compare the effects of market volatilities on Formosa International and Great China 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 Great China. Check out your portfolio center. Please also check ongoing floating volatility patterns of Formosa International and Great China.
Diversification Opportunities for Formosa International and Great China
0.28 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Formosa and Great is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Formosa International Hotels and Great China Metal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Great China Metal 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 Great China. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Great China Metal has no effect on the direction of Formosa International i.e., Formosa International and Great China go up and down completely randomly.
Pair Corralation between Formosa International and Great China
Assuming the 90 days trading horizon Formosa International Hotels is expected to under-perform the Great China. In addition to that, Formosa International is 4.24 times more volatile than Great China Metal. It trades about -0.02 of its total potential returns per unit of risk. Great China Metal is currently generating about 0.0 per unit of volatility. If you would invest 2,317 in Great China Metal on September 26, 2024 and sell it today you would lose (27.00) from holding Great China Metal or give up 1.17% of portfolio value over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Very Weak |
Accuracy | 99.79% |
Values | Daily Returns |
Formosa International Hotels vs. Great China Metal
Performance |
Timeline |
Formosa International |
Great China Metal |
Formosa International and Great China Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Formosa International and Great China
The main advantage of trading using opposite Formosa International and Great China positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Formosa International position performs unexpectedly, Great China 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 Great China will offset losses from the drop in Great China's long position.Formosa International vs. Merida Industry Co | Formosa International vs. Cheng Shin Rubber | Formosa International vs. Uni President Enterprises Corp | Formosa International vs. Pou Chen Corp |
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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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.
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