Correlation Between Formosa Laboratories and Grape King

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

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

Diversification Opportunities for Formosa Laboratories and Grape King

0.23

Correlation Coefficient

Formosa Laboratories  Grape King

Modest diversification

The 3 months correlation between Formosa and Grape is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Formosa Laboratories and Grape King Bio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Grape King Bio and Formosa Laboratories 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 Laboratories are associated (or correlated) with Grape King. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Grape King Bio has no effect on the direction of Formosa Laboratories i.e., Formosa Laboratories and Grape King go up and down completely randomly.

Pair Corralation between Formosa Laboratories and Grape King

Assuming the 90 days trading horizon Formosa Laboratories is expected to generate 1.87 times more return on investment than Grape King. However, Formosa Laboratories is 1.87 times more volatile than Grape King Bio. It trades about 0.01 of its potential returns per unit of risk. Grape King Bio is currently generating about -0.11 per unit of risk. If you would invest  7,600  in Formosa Laboratories on December 5, 2024 and sell it today you would earn a total of  40.00  from holding Formosa Laboratories or generate 0.53% return on investment over 90 days.

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

Formosa Laboratories  vs.  Grape King Bio

Formosa Laboratories

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Formosa Laboratories are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Formosa Laboratories is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Grape King Bio

Risk-Adjusted Performance

Very Weak

Over the last 90 days Grape King Bio has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Grape King 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 Laboratories and Grape King

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

The idea behind Formosa Laboratories and Grape King Bio 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.