Correlation Between Formosa Optical and Tong Yang

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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

FormosaTongDiversified AwayFormosaTongDiversified Away100%
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 Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Formosa Optical Technology  vs.  Tong Yang Industry

 Performance 
JavaScript chart by amCharts 3.21.15Dec2025Feb 051015
JavaScript chart by amCharts 3.21.155312 1319
       Timeline  
Formosa Optical Tech 

Risk-Adjusted Performance

Solid

 
Weak
 
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in Formosa Optical Technology are ranked lower than 23 (%) 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.
JavaScript chart by amCharts 3.21.15DecJanFebJanFeb105110115120125130135
Tong Yang Industry 

Risk-Adjusted Performance

Weak

 
Weak
 
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in Tong Yang Industry are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Tong Yang is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.
JavaScript chart by amCharts 3.21.15DecJanFebJanFeb106108110112114116118120

Formosa Optical and Tong Yang Volatility Contrast

   Predicted Return Density   
JavaScript chart by amCharts 3.21.15-4.7-3.52-2.34-1.160.01.322.664.05.34 0.050.100.15
JavaScript chart by amCharts 3.21.155312 1319
       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.
The idea behind Formosa Optical Technology and Tong Yang Industry 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.
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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