Correlation Between Arima Communications and Compal Broadband

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

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

Diversification Opportunities for Arima Communications and Compal Broadband

0.34

Correlation Coefficient

Arima Communications  Compal Broadband

Weak diversification

The 3 months correlation between Arima and Compal is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding Arima Communications Corp 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 Arima Communications 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 Arima Communications Corp 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 Arima Communications i.e., Arima Communications and Compal Broadband go up and down completely randomly.

Pair Corralation between Arima Communications and Compal Broadband

Assuming the 90 days trading horizon Arima Communications Corp is expected to generate 2.28 times more return on investment than Compal Broadband. However, Arima Communications is 2.28 times more volatile than Compal Broadband Networks. It trades about -0.01 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  1,925  in Arima Communications Corp on December 30, 2024 and sell it today you would lose (90.00) from holding Arima Communications Corp or give up 4.68% of portfolio value over 90 days.

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

Arima Communications Corp  vs.  Compal Broadband Networks

Arima Communications Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Arima Communications Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Arima Communications 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 Arima Communications and Compal Broadband

The main advantage of trading using opposite Arima Communications and Compal Broadband positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Arima Communications 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 Arima Communications Corp 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..