Correlation Between Song Ho and Compal Broadband

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

By analyzing existing cross correlation between Song Ho Industrial and Compal Broadband Networks, you can compare the effects of market volatilities on Song Ho and Compal Broadband 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 Song Ho with a short position of Compal Broadband. Check out your portfolio center. Please also check ongoing floating volatility patterns of Song Ho and Compal Broadband.

Diversification Opportunities for Song Ho and Compal Broadband

0.23

Correlation Coefficient

Song Ho  Compal Broadband

Modest diversification

The 3 months correlation between Song and Compal is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Song Ho Industrial and Compal Broadband Networks in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Compal Broadband Networks and Song Ho 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 Song Ho Industrial are associated (or correlated) with Compal Broadband. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Compal Broadband Networks has no effect on the direction of Song Ho i.e., Song Ho and Compal Broadband go up and down completely randomly.

Pair Corralation between Song Ho and Compal Broadband

Assuming the 90 days trading horizon Song Ho Industrial is expected to generate 0.36 times more return on investment than Compal Broadband. However, Song Ho Industrial is 2.81 times less risky than Compal Broadband. It trades about 0.03 of its potential returns per unit of risk. Compal Broadband Networks is currently generating about -0.09 per unit of risk. If you would invest  2,765  in Song Ho Industrial on December 29, 2024 and sell it today you would earn a total of  25.00  from holding Song Ho Industrial or generate 0.9% return on investment over 90 days.

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

Song Ho Industrial  vs.  Compal Broadband Networks

Song Ho Industrial

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Song Ho Industrial are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Song Ho is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Compal Broadband Networks

Risk-Adjusted Performance

Very Weak

Over the last 90 days Compal Broadband Networks 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.

Pair Trading with Song Ho and Compal Broadband

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

The idea behind Song Ho Industrial and Compal Broadband Networks 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.