Correlation Between Optotech Corp and Compal Electronics

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

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

Diversification Opportunities for Optotech Corp and Compal Electronics

-0.41

Correlation Coefficient

Optotech Corp  Compal Electronics

Very good diversification

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

Pair Corralation between Optotech Corp and Compal Electronics

Assuming the 90 days trading horizon Optotech Corp is expected to under-perform the Compal Electronics. In addition to that, Optotech Corp is 1.28 times more volatile than Compal Electronics. It trades about -0.24 of its total potential returns per unit of risk. Compal Electronics is currently generating about 0.02 per unit of volatility. If you would invest  3,600  in Compal Electronics on October 20, 2024 and sell it today you would earn a total of  30.00  from holding Compal Electronics or generate 0.83% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.46%
Values	Daily Returns

Optotech Corp  vs.  Compal Electronics

Optotech Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Optotech Corp 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.

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.

Pair Trading with Optotech Corp and Compal Electronics

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

The idea behind Optotech Corp and Compal Electronics 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.