Correlation Between Darfon Electronics and China Airlines

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

By analyzing existing cross correlation between Darfon Electronics Corp and China Airlines, you can compare the effects of market volatilities on Darfon Electronics and China Airlines 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 Darfon Electronics with a short position of China Airlines. Check out your portfolio center. Please also check ongoing floating volatility patterns of Darfon Electronics and China Airlines.

Diversification Opportunities for Darfon Electronics and China Airlines

-0.63

Correlation Coefficient

Darfon Electronics  China Airlines

Excellent diversification

The 3 months correlation between Darfon and China is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding Darfon Electronics Corp and China Airlines in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Airlines and Darfon Electronics 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 Darfon Electronics Corp are associated (or correlated) with China Airlines. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Airlines has no effect on the direction of Darfon Electronics i.e., Darfon Electronics and China Airlines go up and down completely randomly.

Pair Corralation between Darfon Electronics and China Airlines

Assuming the 90 days trading horizon Darfon Electronics Corp is expected to under-perform the China Airlines. But the stock apears to be less risky and, when comparing its historical volatility, Darfon Electronics Corp is 1.15 times less risky than China Airlines. The stock trades about -0.27 of its potential returns per unit of risk. The China Airlines is currently generating about -0.08 of returns per unit of risk over similar time horizon. If you would invest  2,695  in China Airlines on October 8, 2024 and sell it today you would lose (80.00) from holding China Airlines or give up 2.97% of portfolio value over 90 days.

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

Darfon Electronics Corp  vs.  China Airlines

Darfon Electronics Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Darfon Electronics Corp 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.

China Airlines

Risk-Adjusted Performance

20 of 100

Solid

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

Pair Trading with Darfon Electronics and China Airlines

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

The idea behind Darfon Electronics Corp and China Airlines 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.

Check out your portfolio center.

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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.