Correlation Between MediaTek and Asia Optical

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

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

Diversification Opportunities for MediaTek and Asia Optical

0.6

Correlation Coefficient

MediaTek  Asia Optical

Poor diversification

The 3 months correlation between MediaTek and Asia is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding MediaTek and Asia Optical Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Asia Optical 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 Asia Optical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Asia Optical has no effect on the direction of MediaTek i.e., MediaTek and Asia Optical go up and down completely randomly.

Pair Corralation between MediaTek and Asia Optical

Assuming the 90 days trading horizon MediaTek is expected to generate 9.3 times less return on investment than Asia Optical. But when comparing it to its historical volatility, MediaTek is 2.26 times less risky than Asia Optical. It trades about 0.07 of its potential returns per unit of risk. Asia Optical Co is currently generating about 0.28 of returns per unit of risk over similar time horizon. If you would invest  10,750  in Asia Optical Co on October 8, 2024 and sell it today you would earn a total of  6,000  from holding Asia Optical Co or generate 55.81% return on investment over 90 days.

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

MediaTek  vs.  Asia Optical Co

MediaTek

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in MediaTek are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, MediaTek may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Asia Optical

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Asia Optical Co are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Asia Optical showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with MediaTek and Asia Optical

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

The idea behind MediaTek and Asia Optical 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.

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 Transaction History module to view history of all your transactions and understand their impact on performance.