Correlation Between Compal Electronics and Datavan International

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

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

Diversification Opportunities for Compal Electronics and Datavan International

0.57

Correlation Coefficient

Compal Electronics  Datavan International

Very weak diversification

The 3 months correlation between Compal and Datavan is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Compal Electronics and Datavan International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Datavan International 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 Datavan International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Datavan International has no effect on the direction of Compal Electronics i.e., Compal Electronics and Datavan International go up and down completely randomly.

Pair Corralation between Compal Electronics and Datavan International

Assuming the 90 days trading horizon Compal Electronics is expected to generate 1.53 times more return on investment than Datavan International. However, Compal Electronics is 1.53 times more volatile than Datavan International. It trades about -0.04 of its potential returns per unit of risk. Datavan International is currently generating about -0.53 per unit of risk. If you would invest  3,705  in Compal Electronics on October 20, 2024 and sell it today you would lose (75.00) from holding Compal Electronics or give up 2.02% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.45%
Values	Daily Returns

Compal Electronics  vs.  Datavan International

Compal Electronics

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Compal Electronics are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. 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.

Datavan International

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Datavan International has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Datavan International 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 Compal Electronics and Datavan International

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

The idea behind Compal Electronics and Datavan International 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.