Correlation Between Compal Electronics and Arbor Technology

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

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

Diversification Opportunities for Compal Electronics and Arbor Technology

0.66

Correlation Coefficient

Compal Electronics  Arbor Technology

Poor diversification

The 3 months correlation between Compal and Arbor is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Compal Electronics and Arbor Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arbor Technology 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 Arbor Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arbor Technology has no effect on the direction of Compal Electronics i.e., Compal Electronics and Arbor Technology go up and down completely randomly.

Pair Corralation between Compal Electronics and Arbor Technology

Assuming the 90 days trading horizon Compal Electronics is expected to generate 1.16 times less return on investment than Arbor Technology. But when comparing it to its historical volatility, Compal Electronics is 1.31 times less risky than Arbor Technology. It trades about 0.07 of its potential returns per unit of risk. Arbor Technology is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  2,750  in Arbor Technology on September 9, 2024 and sell it today you would earn a total of  2,080  from holding Arbor Technology or generate 75.64% return on investment over 90 days.

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

Compal Electronics  vs.  Arbor Technology

Compal Electronics

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Compal Electronics are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Compal Electronics showed solid returns over the last few months and may actually be approaching a breakup point.

Arbor Technology

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Arbor Technology are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Arbor Technology showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Compal Electronics and Arbor Technology

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

The idea behind Compal Electronics and Arbor 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.