Correlation Between Formosa Optical and Icares Medicus

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

Diversification Opportunities for Formosa Optical and Icares Medicus

-0.86

Correlation Coefficient

Formosa Optical  Icares Medicus

Pay attention - limited upside

The 3 months correlation between Formosa and Icares is -0.86. Overlapping area represents the amount of risk that can be diversified away by holding Formosa Optical Technology and Icares Medicus in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Icares Medicus 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 Icares Medicus. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Icares Medicus has no effect on the direction of Formosa Optical i.e., Formosa Optical and Icares Medicus go up and down completely randomly.

Pair Corralation between Formosa Optical and Icares Medicus

Assuming the 90 days trading horizon Formosa Optical Technology is expected to generate 0.43 times more return on investment than Icares Medicus. However, Formosa Optical Technology is 2.33 times less risky than Icares Medicus. It trades about 0.13 of its potential returns per unit of risk. Icares Medicus is currently generating about 0.04 per unit of risk. If you would invest  5,223  in Formosa Optical Technology on September 24, 2024 and sell it today you would earn a total of  5,627  from holding Formosa Optical Technology or generate 107.74% 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.  Icares Medicus

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.

Icares Medicus

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Icares Medicus 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 Icares Medicus

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

The idea behind Formosa Optical Technology and Icares Medicus 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.