Correlation Between ASE Industrial and ADLINK Technology

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

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

Diversification Opportunities for ASE Industrial and ADLINK Technology

0.15

Correlation Coefficient

ASE Industrial  ADLINK Technology

Average diversification

The 3 months correlation between ASE and ADLINK is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding ASE Industrial Holding and ADLINK Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ADLINK Technology and ASE Industrial 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 ASE Industrial Holding are associated (or correlated) with ADLINK Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ADLINK Technology has no effect on the direction of ASE Industrial i.e., ASE Industrial and ADLINK Technology go up and down completely randomly.

Pair Corralation between ASE Industrial and ADLINK Technology

Assuming the 90 days trading horizon ASE Industrial Holding is expected to under-perform the ADLINK Technology. But the stock apears to be less risky and, when comparing its historical volatility, ASE Industrial Holding is 1.24 times less risky than ADLINK Technology. The stock trades about -0.05 of its potential returns per unit of risk. The ADLINK Technology is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  7,480  in ADLINK Technology on December 29, 2024 and sell it today you would earn a total of  1,520  from holding ADLINK Technology or generate 20.32% return on investment over 90 days.

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

ASE Industrial Holding  vs.  ADLINK Technology

ASE Industrial Holding

Risk-Adjusted Performance

Very Weak

Over the last 90 days ASE Industrial Holding has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

ADLINK Technology

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ADLINK Technology are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain basic indicators, ADLINK Technology showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with ASE Industrial and ADLINK Technology

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

The idea behind ASE Industrial Holding and ADLINK Technology 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.