Correlation Between MediaTek and Chroma ATE

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

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

Diversification Opportunities for MediaTek and Chroma ATE

0.68

Correlation Coefficient

MediaTek  Chroma ATE

Poor diversification

The 3 months correlation between MediaTek and Chroma is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding MediaTek and Chroma ATE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chroma ATE and MediaTek 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 MediaTek are associated (or correlated) with Chroma ATE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chroma ATE has no effect on the direction of MediaTek i.e., MediaTek and Chroma ATE go up and down completely randomly.

Pair Corralation between MediaTek and Chroma ATE

Assuming the 90 days trading horizon MediaTek is expected to generate 0.58 times more return on investment than Chroma ATE. However, MediaTek is 1.71 times less risky than Chroma ATE. It trades about 0.26 of its potential returns per unit of risk. Chroma ATE is currently generating about -0.04 per unit of risk. If you would invest  127,000  in MediaTek on September 16, 2024 and sell it today you would earn a total of  14,000  from holding MediaTek or generate 11.02% return on investment over 90 days.

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

MediaTek  vs.  Chroma ATE

MediaTek

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in MediaTek are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, MediaTek showed solid returns over the last few months and may actually be approaching a breakup point.

Chroma ATE

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Chroma ATE are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Chroma ATE may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with MediaTek and Chroma ATE

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

The idea behind MediaTek and Chroma ATE 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.

Check out your portfolio center.

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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.