Correlation Between Formosa Optical and Tong Yang
Can any of the company-specific risk be diversified away by investing in both Formosa Optical and Tong Yang 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 Optical and Tong Yang into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Formosa Optical Technology and Tong Yang Industry, you can compare the effects of market volatilities on Formosa Optical and Tong Yang 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 Optical with a short position of Tong Yang. Check out your portfolio center. Please also check ongoing floating volatility patterns of Formosa Optical and Tong Yang.
Diversification Opportunities for Formosa Optical and Tong Yang
0.36 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Formosa and Tong is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Formosa Optical Technology and Tong Yang Industry in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tong Yang Industry and Formosa Optical 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 Optical Technology are associated (or correlated) with Tong Yang. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tong Yang Industry has no effect on the direction of Formosa Optical i.e., Formosa Optical and Tong Yang go up and down completely randomly.
Pair Corralation between Formosa Optical and Tong Yang
Assuming the 90 days trading horizon Formosa Optical Technology is expected to generate 0.79 times more return on investment than Tong Yang. However, Formosa Optical Technology is 1.27 times less risky than Tong Yang. It trades about 0.29 of its potential returns per unit of risk. Tong Yang Industry is currently generating about 0.03 per unit of risk. If you would invest 10,600 in Formosa Optical Technology on November 18, 2024 and sell it today you would earn a total of 3,250 from holding Formosa Optical Technology or generate 30.66% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Very Weak |
Accuracy | 100.0% |
Values | Daily Returns |
Formosa Optical Technology vs. Tong Yang Industry
Performance |
Timeline |
Formosa Optical Tech |
Tong Yang Industry |
Formosa Optical and Tong Yang Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Formosa Optical and Tong Yang
The main advantage of trading using opposite Formosa Optical and Tong Yang positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Formosa Optical position performs unexpectedly, Tong Yang 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 Tong Yang will offset losses from the drop in Tong Yang's long position.Formosa Optical vs. Zhen Ding Technology | ||
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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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.
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