Correlation Between Compal Electronics and Cars

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

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

Diversification Opportunities for Compal Electronics and Cars

0.0

Correlation Coefficient

Compal Electronics  Cars

Pay attention - limited upside

The 3 months correlation between Compal and Cars is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Compal Electronics GDR and Cars Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cars Inc and Compal 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 Compal Electronics GDR are associated (or correlated) with Cars. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cars Inc has no effect on the direction of Compal Electronics i.e., Compal Electronics and Cars go up and down completely randomly.

Pair Corralation between Compal Electronics and Cars

Assuming the 90 days trading horizon Compal Electronics is expected to generate 2.31 times less return on investment than Cars. But when comparing it to its historical volatility, Compal Electronics GDR is 1.69 times less risky than Cars. It trades about 0.01 of its potential returns per unit of risk. Cars Inc is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  1,720  in Cars Inc on October 5, 2024 and sell it today you would earn a total of  39.00  from holding Cars Inc or generate 2.27% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	55.58%
Values	Daily Returns

Compal Electronics GDR  vs.  Cars Inc

Compal Electronics GDR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Compal Electronics GDR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Compal Electronics is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Cars Inc

Risk-Adjusted Performance

0 of 100

OK

Over the last 90 days Cars Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively unsteady basic indicators, Cars unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Compal Electronics and Cars

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

The idea behind Compal Electronics GDR and Cars Inc 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.