Correlation Between Pacific Hospital and Formosa Optical

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

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

Diversification Opportunities for Pacific Hospital and Formosa Optical

0.62

Correlation Coefficient

Pacific Hospital  Formosa Optical

Poor diversification

The 3 months correlation between Pacific and Formosa is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Pacific Hospital Supply 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 Pacific Hospital 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 Pacific Hospital Supply 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 Pacific Hospital i.e., Pacific Hospital and Formosa Optical go up and down completely randomly.

Pair Corralation between Pacific Hospital and Formosa Optical

Assuming the 90 days trading horizon Pacific Hospital Supply is expected to generate 0.78 times more return on investment than Formosa Optical. However, Pacific Hospital Supply is 1.28 times less risky than Formosa Optical. It trades about 0.26 of its potential returns per unit of risk. Formosa Optical Technology is currently generating about 0.1 per unit of risk. If you would invest  8,790  in Pacific Hospital Supply on October 9, 2024 and sell it today you would earn a total of  720.00  from holding Pacific Hospital Supply or generate 8.19% return on investment over 90 days.

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

Pacific Hospital Supply  vs.  Formosa Optical Technology

Pacific Hospital Supply

Risk-Adjusted Performance

14 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Pacific Hospital Supply are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Pacific Hospital may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Formosa Optical Tech

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Formosa Optical Technology are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Formosa Optical may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Pacific Hospital and Formosa Optical

The main advantage of trading using opposite Pacific Hospital and Formosa Optical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Pacific Hospital 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 Pacific Hospital Supply 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.