Correlation Between AU Optronics and Compal Electronics

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

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

Diversification Opportunities for AU Optronics and Compal Electronics

0.4

Correlation Coefficient

AU Optronics  Compal Electronics

Very weak diversification

The 3 months correlation between 2409 and Compal is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding AU Optronics and Compal Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Compal Electronics and AU Optronics 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 AU Optronics 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 AU Optronics i.e., AU Optronics and Compal Electronics go up and down completely randomly.

Pair Corralation between AU Optronics and Compal Electronics

Assuming the 90 days trading horizon AU Optronics is expected to under-perform the Compal Electronics. In addition to that, AU Optronics is 1.26 times more volatile than Compal Electronics. It trades about -0.01 of its total potential returns per unit of risk. Compal Electronics is currently generating about 0.04 per unit of volatility. If you would invest  3,780  in Compal Electronics on December 2, 2024 and sell it today you would earn a total of  100.00  from holding Compal Electronics or generate 2.65% return on investment over 90 days.

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

AU Optronics  vs.  Compal Electronics

AU Optronics

Risk-Adjusted Performance

Very Weak

Over the last 90 days AU Optronics has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, AU Optronics is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Compal Electronics

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Compal Electronics are ranked lower than 2 (%) 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 AU Optronics and Compal Electronics

The main advantage of trading using opposite AU Optronics and Compal Electronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if AU Optronics 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 AU Optronics 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.