Correlation Between MediaTek and Galaxy Software

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

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

Diversification Opportunities for MediaTek and Galaxy Software

0.62

Correlation Coefficient

MediaTek  Galaxy Software

Poor diversification

The 3 months correlation between MediaTek and Galaxy is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding MediaTek and Galaxy Software Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Galaxy Software Services 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 Galaxy Software. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Galaxy Software Services has no effect on the direction of MediaTek i.e., MediaTek and Galaxy Software go up and down completely randomly.

Pair Corralation between MediaTek and Galaxy Software

Assuming the 90 days trading horizon MediaTek is expected to generate 4.77 times less return on investment than Galaxy Software. But when comparing it to its historical volatility, MediaTek is 1.21 times less risky than Galaxy Software. It trades about 0.02 of its potential returns per unit of risk. Galaxy Software Services is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  10,231  in Galaxy Software Services on September 27, 2024 and sell it today you would earn a total of  2,769  from holding Galaxy Software Services or generate 27.06% return on investment over 90 days.

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

MediaTek  vs.  Galaxy Software Services

MediaTek

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in MediaTek are ranked lower than 7 (%) 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 January 2025.

Galaxy Software Services

Risk-Adjusted Performance

4 of 100

Modest

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

Pair Trading with MediaTek and Galaxy Software

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

The idea behind MediaTek and Galaxy Software Services 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.