Correlation Between Compal Electronics and Chumpower Machinery

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

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

Diversification Opportunities for Compal Electronics and Chumpower Machinery

-0.69

Correlation Coefficient

Compal Electronics  Chumpower Machinery

Excellent diversification

The 3 months correlation between Compal and Chumpower is -0.69. Overlapping area represents the amount of risk that can be diversified away by holding Compal Electronics and Chumpower Machinery Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chumpower Machinery Corp 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 Chumpower Machinery. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chumpower Machinery Corp has no effect on the direction of Compal Electronics i.e., Compal Electronics and Chumpower Machinery go up and down completely randomly.

Pair Corralation between Compal Electronics and Chumpower Machinery

Assuming the 90 days trading horizon Compal Electronics is expected to generate 0.81 times more return on investment than Chumpower Machinery. However, Compal Electronics is 1.24 times less risky than Chumpower Machinery. It trades about 0.12 of its potential returns per unit of risk. Chumpower Machinery Corp is currently generating about -0.03 per unit of risk. If you would invest  3,395  in Compal Electronics on October 4, 2024 and sell it today you would earn a total of  370.00  from holding Compal Electronics or generate 10.9% return on investment over 90 days.

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

Compal Electronics  vs.  Chumpower Machinery Corp

Compal Electronics

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Compal Electronics are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Compal Electronics may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Chumpower Machinery Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Chumpower Machinery Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Chumpower Machinery 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 Chumpower Machinery

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

The idea behind Compal Electronics and Chumpower Machinery Corp 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.