Correlation Between Compal Electronics and Taiwan Semiconductor

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

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

Diversification Opportunities for Compal Electronics and Taiwan Semiconductor

0.21

Correlation Coefficient

Compal Electronics  Taiwan Semiconductor

Modest diversification

The 3 months correlation between Compal and Taiwan is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Compal Electronics and Taiwan Semiconductor Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Taiwan Semiconductor 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 Taiwan Semiconductor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Taiwan Semiconductor has no effect on the direction of Compal Electronics i.e., Compal Electronics and Taiwan Semiconductor go up and down completely randomly.

Pair Corralation between Compal Electronics and Taiwan Semiconductor

Assuming the 90 days trading horizon Compal Electronics is expected to generate 1.08 times more return on investment than Taiwan Semiconductor. However, Compal Electronics is 1.08 times more volatile than Taiwan Semiconductor Co. It trades about 0.02 of its potential returns per unit of risk. Taiwan Semiconductor Co is currently generating about -0.22 per unit of risk. If you would invest  3,620  in Compal Electronics on October 25, 2024 and sell it today you would earn a total of  45.00  from holding Compal Electronics or generate 1.24% return on investment over 90 days.

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

Compal Electronics  vs.  Taiwan Semiconductor Co

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 current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Taiwan Semiconductor

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Taiwan Semiconductor Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in February 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Pair Trading with Compal Electronics and Taiwan Semiconductor

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

The idea behind Compal Electronics and Taiwan Semiconductor 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.

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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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.