Correlation Between Compal Electronics and Chicony Electronics

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

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

Diversification Opportunities for Compal Electronics and Chicony Electronics

0.15

Correlation Coefficient

Compal Electronics  Chicony Electronics

Average diversification

The 3 months correlation between Compal and Chicony is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding Compal Electronics and Chicony Electronics Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chicony Electronics 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 Chicony Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chicony Electronics has no effect on the direction of Compal Electronics i.e., Compal Electronics and Chicony Electronics go up and down completely randomly.

Pair Corralation between Compal Electronics and Chicony Electronics

Assuming the 90 days trading horizon Compal Electronics is expected to under-perform the Chicony Electronics. But the stock apears to be less risky and, when comparing its historical volatility, Compal Electronics is 1.05 times less risky than Chicony Electronics. The stock trades about -0.07 of its potential returns per unit of risk. The Chicony Electronics Co is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  15,300  in Chicony Electronics Co on December 30, 2024 and sell it today you would earn a total of  1,900  from holding Chicony Electronics Co or generate 12.42% 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.  Chicony Electronics Co

Compal Electronics

Risk-Adjusted Performance

Very Weak

Over the last 90 days Compal Electronics has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Chicony Electronics

Risk-Adjusted Performance

OK

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

Pair Trading with Compal Electronics and Chicony Electronics

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

The idea behind Compal Electronics and Chicony Electronics 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.

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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.