Correlation Between Pou Chen and Faraday Technology

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

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

Diversification Opportunities for Pou Chen and Faraday Technology

0.32

Correlation Coefficient

Pou Chen  Faraday Technology

Weak diversification

The 3 months correlation between Pou and Faraday is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Pou Chen Corp and Faraday Technology Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Faraday Technology Corp and Pou Chen 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 Pou Chen Corp are associated (or correlated) with Faraday Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Faraday Technology Corp has no effect on the direction of Pou Chen i.e., Pou Chen and Faraday Technology go up and down completely randomly.

Pair Corralation between Pou Chen and Faraday Technology

Assuming the 90 days trading horizon Pou Chen Corp is expected to under-perform the Faraday Technology. But the stock apears to be less risky and, when comparing its historical volatility, Pou Chen Corp is 1.57 times less risky than Faraday Technology. The stock trades about -0.05 of its potential returns per unit of risk. The Faraday Technology Corp is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  24,550  in Faraday Technology Corp on December 27, 2024 and sell it today you would earn a total of  0.00  from holding Faraday Technology Corp or generate 0.0% return on investment over 90 days.

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

Pou Chen Corp  vs.  Faraday Technology Corp

Pou Chen Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Pou Chen Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Pou Chen is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Faraday Technology Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Faraday Technology Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Faraday Technology is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Pou Chen and Faraday Technology

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

The idea behind Pou Chen Corp and Faraday Technology 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..