Correlation Between Formosa Advanced and Powertech Technology

Can any of the company-specific risk be diversified away by investing in both Formosa Advanced and Powertech Technology 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 Advanced and Powertech Technology into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Formosa Advanced Technologies and Powertech Technology, you can compare the effects of market volatilities on Formosa Advanced and Powertech Technology 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 Advanced with a short position of Powertech Technology. Check out your portfolio center. Please also check ongoing floating volatility patterns of Formosa Advanced and Powertech Technology.

Diversification Opportunities for Formosa Advanced and Powertech Technology

0.67

Correlation Coefficient

Formosa Advanced  Powertech Technology

Poor diversification

The 3 months correlation between Formosa and Powertech is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Formosa Advanced Technologies and Powertech Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Powertech Technology and Formosa Advanced 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 Advanced Technologies are associated (or correlated) with Powertech Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Powertech Technology has no effect on the direction of Formosa Advanced i.e., Formosa Advanced and Powertech Technology go up and down completely randomly.

Pair Corralation between Formosa Advanced and Powertech Technology

Assuming the 90 days trading horizon Formosa Advanced Technologies is expected to under-perform the Powertech Technology. But the stock apears to be less risky and, when comparing its historical volatility, Formosa Advanced Technologies is 1.38 times less risky than Powertech Technology. The stock trades about -0.23 of its potential returns per unit of risk. The Powertech Technology is currently generating about -0.11 of returns per unit of risk over similar time horizon. If you would invest  13,250  in Powertech Technology on October 24, 2024 and sell it today you would lose (1,600) from holding Powertech Technology or give up 12.08% of portfolio value over 90 days.

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

Formosa Advanced Technologies  vs.  Powertech Technology

Formosa Advanced Tec

Risk-Adjusted Performance

0 of 100

Very Weak

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

Powertech Technology

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Powertech Technology has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Pair Trading with Formosa Advanced and Powertech Technology

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

The idea behind Formosa Advanced Technologies and Powertech Technology 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.