Correlation Between Formosa Optical and Pou Chen

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

Diversification Opportunities for Formosa Optical and Pou Chen

0.88

Correlation Coefficient

Formosa Optical  Pou Chen

Very poor diversification

The 3 months correlation between Formosa and Pou is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Formosa Optical Technology and Pou Chen Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pou Chen Corp 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 Pou Chen. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pou Chen Corp has no effect on the direction of Formosa Optical i.e., Formosa Optical and Pou Chen go up and down completely randomly.

Pair Corralation between Formosa Optical and Pou Chen

Assuming the 90 days trading horizon Formosa Optical Technology is expected to generate 0.84 times more return on investment than Pou Chen. However, Formosa Optical Technology is 1.18 times less risky than Pou Chen. It trades about 0.13 of its potential returns per unit of risk. Pou Chen Corp is currently generating about 0.03 per unit of risk. If you would invest  5,232  in Formosa Optical Technology on September 25, 2024 and sell it today you would earn a total of  5,718  from holding Formosa Optical Technology or generate 109.29% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	99.79%
Values	Daily Returns

Formosa Optical Technology  vs.  Pou Chen Corp

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.

Pou Chen Corp

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Pou Chen Corp are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Pou Chen may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Formosa Optical and Pou Chen

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

The idea behind Formosa Optical Technology and Pou Chen Corp 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.