Correlation Between Formosa Optical and Pegavision

Can any of the company-specific risk be diversified away by investing in both Formosa Optical and Pegavision 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 Pegavision 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 Pegavision, you can compare the effects of market volatilities on Formosa Optical and Pegavision 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 Pegavision. Check out your portfolio center. Please also check ongoing floating volatility patterns of Formosa Optical and Pegavision.

Diversification Opportunities for Formosa Optical and Pegavision

-0.81

Correlation Coefficient

Formosa Optical  Pegavision

Pay attention - limited upside

The 3 months correlation between Formosa and Pegavision is -0.81. Overlapping area represents the amount of risk that can be diversified away by holding Formosa Optical Technology and Pegavision in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pegavision 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 Pegavision. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pegavision has no effect on the direction of Formosa Optical i.e., Formosa Optical and Pegavision go up and down completely randomly.

Pair Corralation between Formosa Optical and Pegavision

Assuming the 90 days trading horizon Formosa Optical Technology is expected to generate 0.58 times more return on investment than Pegavision. However, Formosa Optical Technology is 1.73 times less risky than Pegavision. It trades about 0.07 of its potential returns per unit of risk. Pegavision is currently generating about -0.18 per unit of risk. If you would invest  10,700  in Formosa Optical Technology on September 24, 2024 and sell it today you would earn a total of  150.00  from holding Formosa Optical Technology or generate 1.4% return on investment over 90 days.

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

Formosa Optical Technology  vs.  Pegavision

Formosa Optical Tech

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Formosa Optical Technology are ranked lower than 11 (%) 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 January 2025.

Pegavision

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Pegavision 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 January 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Pair Trading with Formosa Optical and Pegavision

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

The idea behind Formosa Optical Technology and Pegavision 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.