Correlation Between Compal Electronics and Microelectronics

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

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

Diversification Opportunities for Compal Electronics and Microelectronics

0.19

Correlation Coefficient

Compal Electronics  Microelectronics

Average diversification

The 3 months correlation between Compal and Microelectronics is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding Compal Electronics and Microelectronics Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microelectronics Tec and Compal Electronics 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 Compal Electronics are associated (or correlated) with Microelectronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Microelectronics Tec has no effect on the direction of Compal Electronics i.e., Compal Electronics and Microelectronics go up and down completely randomly.

Pair Corralation between Compal Electronics and Microelectronics

Assuming the 90 days trading horizon Compal Electronics is expected to generate 23.06 times less return on investment than Microelectronics. But when comparing it to its historical volatility, Compal Electronics is 1.97 times less risky than Microelectronics. It trades about 0.01 of its potential returns per unit of risk. Microelectronics Technology is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  3,185  in Microelectronics Technology on October 7, 2024 and sell it today you would earn a total of  485.00  from holding Microelectronics Technology or generate 15.23% return on investment over 90 days.

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

Compal Electronics  vs.  Microelectronics Technology

Compal Electronics

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Compal Electronics are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Compal Electronics may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Microelectronics Tec

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Microelectronics Technology are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Microelectronics showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Compal Electronics and Microelectronics

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

The idea behind Compal Electronics and Microelectronics Technology 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 Transaction History module to view history of all your transactions and understand their impact on performance.