Correlation Between Lite On and Wistron Corp

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

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

Diversification Opportunities for Lite On and Wistron Corp

0.6

Correlation Coefficient

Lite On  Wistron Corp

Poor diversification

The 3 months correlation between Lite and Wistron is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Lite On Technology Corp and Wistron Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wistron Corp and Lite On 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 Lite On Technology Corp are associated (or correlated) with Wistron Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wistron Corp has no effect on the direction of Lite On i.e., Lite On and Wistron Corp go up and down completely randomly.

Pair Corralation between Lite On and Wistron Corp

Assuming the 90 days trading horizon Lite On Technology Corp is expected to generate 0.7 times more return on investment than Wistron Corp. However, Lite On Technology Corp is 1.43 times less risky than Wistron Corp. It trades about -0.02 of its potential returns per unit of risk. Wistron Corp is currently generating about -0.01 per unit of risk. If you would invest  10,050  in Lite On Technology Corp on December 30, 2024 and sell it today you would lose (250.00) from holding Lite On Technology Corp or give up 2.49% of portfolio value over 90 days.

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

Lite On Technology Corp  vs.  Wistron Corp

Lite On Technology

Risk-Adjusted Performance

Very Weak

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

Wistron Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Wistron Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Wistron Corp 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 Lite On and Wistron Corp

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

The idea behind Lite On Technology Corp and Wistron Corp 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.

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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.