Correlation Between AU Optronics and Advantech

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

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

Diversification Opportunities for AU Optronics and Advantech

0.02

Correlation Coefficient

AU Optronics  Advantech

Significant diversification

The 3 months correlation between 2409 and Advantech is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding AU Optronics and Advantech Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Advantech 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 Advantech. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Advantech has no effect on the direction of AU Optronics i.e., AU Optronics and Advantech go up and down completely randomly.

Pair Corralation between AU Optronics and Advantech

Assuming the 90 days trading horizon AU Optronics is expected to generate 10.18 times less return on investment than Advantech. But when comparing it to its historical volatility, AU Optronics is 1.19 times less risky than Advantech. It trades about 0.01 of its potential returns per unit of risk. Advantech Co is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  34,550  in Advantech Co on December 28, 2024 and sell it today you would earn a total of  4,250  from holding Advantech Co or generate 12.3% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.21%
Values	Daily Returns

AU Optronics  vs.  Advantech Co

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.

Advantech

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Advantech Co are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Advantech showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with AU Optronics and Advantech

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

The idea behind AU Optronics and Advantech 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.