Correlation Between Formosa Electronic and C Media

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

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

Diversification Opportunities for Formosa Electronic and C Media

0.15

Correlation Coefficient

Formosa Electronic  C Media

Average diversification

The 3 months correlation between Formosa and 6237 is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding Formosa Electronic Industries and C Media Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on C Media Electronics and Formosa Electronic 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 Electronic Industries are associated (or correlated) with C Media. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of C Media Electronics has no effect on the direction of Formosa Electronic i.e., Formosa Electronic and C Media go up and down completely randomly.

Pair Corralation between Formosa Electronic and C Media

Assuming the 90 days trading horizon Formosa Electronic Industries is expected to generate 1.31 times more return on investment than C Media. However, Formosa Electronic is 1.31 times more volatile than C Media Electronics. It trades about 0.14 of its potential returns per unit of risk. C Media Electronics is currently generating about 0.1 per unit of risk. 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

Formosa Electronic Industries  vs.  C Media Electronics

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.

C Media Electronics

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in C Media Electronics are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, C Media showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Formosa Electronic and C Media

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

The idea behind Formosa Electronic Industries and C Media Electronics 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.