Correlation Between ESUN Financial and Formosa Laboratories

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

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

Diversification Opportunities for ESUN Financial and Formosa Laboratories

-0.53

Correlation Coefficient

ESUN Financial  Formosa Laboratories

Excellent diversification

The 3 months correlation between ESUN and Formosa is -0.53. Overlapping area represents the amount of risk that can be diversified away by holding ESUN Financial Holding and Formosa Laboratories in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Formosa Laboratories and ESUN Financial 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 ESUN Financial Holding are associated (or correlated) with Formosa Laboratories. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Formosa Laboratories has no effect on the direction of ESUN Financial i.e., ESUN Financial and Formosa Laboratories go up and down completely randomly.

Pair Corralation between ESUN Financial and Formosa Laboratories

Assuming the 90 days trading horizon ESUN Financial Holding is expected to generate 0.35 times more return on investment than Formosa Laboratories. However, ESUN Financial Holding is 2.88 times less risky than Formosa Laboratories. It trades about 0.21 of its potential returns per unit of risk. Formosa Laboratories is currently generating about -0.07 per unit of risk. If you would invest  2,465  in ESUN Financial Holding on February 15, 2024 and sell it today you would earn a total of  325.00  from holding ESUN Financial Holding or generate 13.18% return on investment over 90 days.

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

ESUN Financial Holding  vs.  Formosa Laboratories

ESUN Financial Holding

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in ESUN Financial Holding are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, ESUN Financial showed solid returns over the last few months and may actually be approaching a breakup point.

Formosa Laboratories

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Formosa Laboratories has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in June 2024. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Pair Trading with ESUN Financial and Formosa Laboratories

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

The idea behind ESUN Financial Holding and Formosa Laboratories 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.