Correlation Between Compal Electronics and Toyota

Can any of the company-specific risk be diversified away by investing in both Compal Electronics and Toyota 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 Toyota 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 Toyota Motor Corp, you can compare the effects of market volatilities on Compal Electronics and Toyota 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 Toyota. Check out your portfolio center. Please also check ongoing floating volatility patterns of Compal Electronics and Toyota.

Diversification Opportunities for Compal Electronics and Toyota

-0.05

Correlation Coefficient

Compal Electronics  Toyota

Good diversification

The 3 months correlation between Compal and Toyota is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding Compal Electronics GDR and Toyota Motor Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Toyota Motor Corp 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 Toyota. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Toyota Motor Corp has no effect on the direction of Compal Electronics i.e., Compal Electronics and Toyota go up and down completely randomly.

Pair Corralation between Compal Electronics and Toyota

Assuming the 90 days trading horizon Compal Electronics GDR is expected to generate 0.28 times more return on investment than Toyota. However, Compal Electronics GDR is 3.57 times less risky than Toyota. It trades about 0.12 of its potential returns per unit of risk. Toyota Motor Corp is currently generating about -0.07 per unit of risk. If you would invest  295.00  in Compal Electronics GDR on December 30, 2024 and sell it today you would earn a total of  15.00  from holding Compal Electronics GDR or generate 5.08% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.46%
Values	Daily Returns

Compal Electronics GDR  vs.  Toyota Motor Corp

Compal Electronics GDR

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Compal Electronics GDR are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. 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.

Toyota Motor Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Toyota Motor Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Compal Electronics and Toyota

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

The idea behind Compal Electronics GDR and Toyota Motor Corp 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.