Correlation Between Delta Electronics and Formosa Electronic

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

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

Diversification Opportunities for Delta Electronics and Formosa Electronic

0.11

Correlation Coefficient

Delta Electronics  Formosa Electronic

Average diversification

The 3 months correlation between Delta and Formosa is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding Delta Electronics and Formosa Electronic Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Formosa Electronic and Delta Electronics 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 Delta Electronics are associated (or correlated) with Formosa Electronic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Formosa Electronic has no effect on the direction of Delta Electronics i.e., Delta Electronics and Formosa Electronic go up and down completely randomly.

Pair Corralation between Delta Electronics and Formosa Electronic

Assuming the 90 days trading horizon Delta Electronics is expected to generate 4.2 times less return on investment than Formosa Electronic. But when comparing it to its historical volatility, Delta Electronics is 1.73 times less risky than Formosa Electronic. It trades about 0.06 of its potential returns per unit of risk. Formosa Electronic Industries is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  3,235  in Formosa Electronic Industries on September 5, 2024 and sell it today you would earn a total of  945.00  from holding Formosa Electronic Industries or generate 29.21% return on investment over 90 days.

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

Delta Electronics  vs.  Formosa Electronic Industries

Delta Electronics

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Delta Electronics are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Delta Electronics may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Formosa Electronic

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Formosa Electronic Industries are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Formosa Electronic showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Delta Electronics and Formosa Electronic

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

The idea behind Delta Electronics and Formosa Electronic Industries 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.