Correlation Between Compal Electronics and AU Optronics

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

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

Diversification Opportunities for Compal Electronics and AU Optronics

0.41

Correlation Coefficient

Compal Electronics  AU Optronics

Very weak diversification

The 3 months correlation between Compal and 2409 is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Compal Electronics and AU Optronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AU Optronics 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 AU Optronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AU Optronics has no effect on the direction of Compal Electronics i.e., Compal Electronics and AU Optronics go up and down completely randomly.

Pair Corralation between Compal Electronics and AU Optronics

Assuming the 90 days trading horizon Compal Electronics is expected to generate 79.85 times less return on investment than AU Optronics. But when comparing it to its historical volatility, Compal Electronics is 1.14 times less risky than AU Optronics. It trades about 0.0 of its potential returns per unit of risk. AU Optronics is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  1,375  in AU Optronics on December 4, 2024 and sell it today you would earn a total of  105.00  from holding AU Optronics or generate 7.64% return on investment over 90 days.

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

Compal Electronics  vs.  AU Optronics

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 fairly stable basic indicators, Compal Electronics is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

AU Optronics

Risk-Adjusted Performance

Very Weak

Over the last 90 days AU Optronics 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.

Pair Trading with Compal Electronics and AU Optronics

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

The idea behind Compal Electronics and AU Optronics 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.