Correlation Between Information Technology and CoAsia Microelectronics

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

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

Diversification Opportunities for Information Technology and CoAsia Microelectronics

0.48

Correlation Coefficient

Information Technology  CoAsia Microelectronics

Very weak diversification

The 3 months correlation between Information and CoAsia is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Information Technology Total and CoAsia Microelectronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CoAsia Microelectronics and Information Technology 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 Information Technology Total are associated (or correlated) with CoAsia Microelectronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CoAsia Microelectronics has no effect on the direction of Information Technology i.e., Information Technology and CoAsia Microelectronics go up and down completely randomly.

Pair Corralation between Information Technology and CoAsia Microelectronics

Assuming the 90 days trading horizon Information Technology is expected to generate 5.07 times less return on investment than CoAsia Microelectronics. But when comparing it to its historical volatility, Information Technology Total is 1.6 times less risky than CoAsia Microelectronics. It trades about 0.08 of its potential returns per unit of risk. CoAsia Microelectronics is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest  3,910  in CoAsia Microelectronics on December 3, 2024 and sell it today you would earn a total of  3,040  from holding CoAsia Microelectronics or generate 77.75% return on investment over 90 days.

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

Information Technology Total  vs.  CoAsia Microelectronics

Information Technology

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Information Technology Total are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Information Technology showed solid returns over the last few months and may actually be approaching a breakup point.

CoAsia Microelectronics

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in CoAsia Microelectronics are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, CoAsia Microelectronics showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Information Technology and CoAsia Microelectronics

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

The idea behind Information Technology Total and CoAsia Microelectronics 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.