Correlation Between ALi Corp and Formosa Optical

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

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

Diversification Opportunities for ALi Corp and Formosa Optical

-0.41

Correlation Coefficient

ALi Corp  Formosa Optical

Very good diversification

The 3 months correlation between ALi and Formosa is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding ALi Corp and Formosa Optical Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Formosa Optical Tech and ALi Corp 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 ALi Corp are associated (or correlated) with Formosa Optical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Formosa Optical Tech has no effect on the direction of ALi Corp i.e., ALi Corp and Formosa Optical go up and down completely randomly.

Pair Corralation between ALi Corp and Formosa Optical

Assuming the 90 days trading horizon ALi Corp is expected to under-perform the Formosa Optical. In addition to that, ALi Corp is 1.77 times more volatile than Formosa Optical Technology. It trades about -0.07 of its total potential returns per unit of risk. Formosa Optical Technology is currently generating about 0.24 per unit of volatility. If you would invest  10,950  in Formosa Optical Technology on December 23, 2024 and sell it today you would earn a total of  2,950  from holding Formosa Optical Technology or generate 26.94% return on investment over 90 days.

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

ALi Corp  vs.  Formosa Optical Technology

ALi Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days ALi Corp 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.

Formosa Optical Tech

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Formosa Optical Technology are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Formosa Optical showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with ALi Corp and Formosa Optical

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

The idea behind ALi Corp and Formosa Optical 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..