Correlation Between Formosa Plastics and Cyberlink

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

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

Diversification Opportunities for Formosa Plastics and Cyberlink

0.74

Correlation Coefficient

Formosa Plastics  Cyberlink

Poor diversification

The 3 months correlation between Formosa and Cyberlink is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Formosa Plastics Corp and Cyberlink Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cyberlink and Formosa Plastics 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 Plastics Corp are associated (or correlated) with Cyberlink. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cyberlink has no effect on the direction of Formosa Plastics i.e., Formosa Plastics and Cyberlink go up and down completely randomly.

Pair Corralation between Formosa Plastics and Cyberlink

Assuming the 90 days trading horizon Formosa Plastics Corp is expected to under-perform the Cyberlink. But the stock apears to be less risky and, when comparing its historical volatility, Formosa Plastics Corp is 1.72 times less risky than Cyberlink. The stock trades about -0.06 of its potential returns per unit of risk. The Cyberlink Co is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  8,231  in Cyberlink Co on February 5, 2024 and sell it today you would earn a total of  819.00  from holding Cyberlink Co or generate 9.95% return on investment over 90 days.

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

Formosa Plastics Corp  vs.  Cyberlink Co

Formosa Plastics Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Formosa Plastics Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Formosa Plastics is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Cyberlink

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Cyberlink Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Cyberlink is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Formosa Plastics and Cyberlink

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

The idea behind Formosa Plastics Corp and Cyberlink Co 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.