Correlation Between Cisarua Mountain and Formosa Ingredient

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

By analyzing existing cross correlation between Cisarua Mountain Dairy and Formosa Ingredient Factory, you can compare the effects of market volatilities on Cisarua Mountain and Formosa Ingredient 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 Cisarua Mountain with a short position of Formosa Ingredient. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cisarua Mountain and Formosa Ingredient.

Diversification Opportunities for Cisarua Mountain and Formosa Ingredient

-0.04

Correlation Coefficient

Cisarua Mountain  Formosa Ingredient

Good diversification

The 3 months correlation between Cisarua and Formosa is -0.04. Overlapping area represents the amount of risk that can be diversified away by holding Cisarua Mountain Dairy and Formosa Ingredient Factory in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Formosa Ingredient and Cisarua Mountain 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 Cisarua Mountain Dairy are associated (or correlated) with Formosa Ingredient. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Formosa Ingredient has no effect on the direction of Cisarua Mountain i.e., Cisarua Mountain and Formosa Ingredient go up and down completely randomly.

Pair Corralation between Cisarua Mountain and Formosa Ingredient

Assuming the 90 days trading horizon Cisarua Mountain Dairy is expected to under-perform the Formosa Ingredient. But the stock apears to be less risky and, when comparing its historical volatility, Cisarua Mountain Dairy is 1.95 times less risky than Formosa Ingredient. The stock trades about -0.04 of its potential returns per unit of risk. The Formosa Ingredient Factory is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  20,555  in Formosa Ingredient Factory on September 16, 2024 and sell it today you would lose (1,855) from holding Formosa Ingredient Factory or give up 9.02% of portfolio value over 90 days.

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

Cisarua Mountain Dairy  vs.  Formosa Ingredient Factory

Cisarua Mountain Dairy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Cisarua Mountain Dairy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent forward-looking signals, Cisarua Mountain is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Formosa Ingredient

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Formosa Ingredient Factory has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent forward-looking signals, Formosa Ingredient is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Cisarua Mountain and Formosa Ingredient

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

The idea behind Cisarua Mountain Dairy and Formosa Ingredient Factory 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.