Correlation Between Formosa International and Leofoo Development
Can any of the company-specific risk be diversified away by investing in both Formosa International and Leofoo Development 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 International and Leofoo Development into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Formosa International Hotels and Leofoo Development Co, you can compare the effects of market volatilities on Formosa International and Leofoo Development 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 International with a short position of Leofoo Development. Check out your portfolio center. Please also check ongoing floating volatility patterns of Formosa International and Leofoo Development.
Diversification Opportunities for Formosa International and Leofoo Development
0.79 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Formosa and Leofoo is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Formosa International Hotels and Leofoo Development Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Leofoo Development and Formosa International 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 International Hotels are associated (or correlated) with Leofoo Development. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Leofoo Development has no effect on the direction of Formosa International i.e., Formosa International and Leofoo Development go up and down completely randomly.
Pair Corralation between Formosa International and Leofoo Development
Assuming the 90 days trading horizon Formosa International is expected to generate 2.37 times less return on investment than Leofoo Development. But when comparing it to its historical volatility, Formosa International Hotels is 1.15 times less risky than Leofoo Development. It trades about 0.03 of its potential returns per unit of risk. Leofoo Development Co is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest 1,825 in Leofoo Development Co on February 14, 2024 and sell it today you would earn a total of 195.00 from holding Leofoo Development Co or generate 10.68% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Significant |
Accuracy | 100.0% |
Values | Daily Returns |
Formosa International Hotels vs. Leofoo Development Co
Performance |
Timeline |
Formosa International |
Leofoo Development |
Formosa International and Leofoo Development Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Formosa International and Leofoo Development
The main advantage of trading using opposite Formosa International and Leofoo Development positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Formosa International position performs unexpectedly, Leofoo Development 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 Leofoo Development will offset losses from the drop in Leofoo Development's long position.Formosa International vs. President Chain Store | Formosa International vs. Uni President Enterprises Corp | Formosa International vs. Ambassador Hotel | Formosa International vs. Hotai Motor Co |
Leofoo Development vs. First Hotel Co | Leofoo Development vs. Hotel Holiday Garden | Leofoo Development vs. Taiwan Tea Corp | Leofoo Development vs. Far Eastern Department |
Check out your portfolio center.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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.
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