Correlation Between Kinpo Electronics and Compal Electronics

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

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

Diversification Opportunities for Kinpo Electronics and Compal Electronics

0.89

Correlation Coefficient

Kinpo Electronics  Compal Electronics

Very poor diversification

The 3 months correlation between Kinpo and Compal is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Kinpo Electronics and Compal Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Compal Electronics and Kinpo 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 Kinpo Electronics are associated (or correlated) with Compal Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Compal Electronics has no effect on the direction of Kinpo Electronics i.e., Kinpo Electronics and Compal Electronics go up and down completely randomly.

Pair Corralation between Kinpo Electronics and Compal Electronics

Assuming the 90 days trading horizon Kinpo Electronics is expected to generate 1.5 times more return on investment than Compal Electronics. However, Kinpo Electronics is 1.5 times more volatile than Compal Electronics. It trades about 0.09 of its potential returns per unit of risk. Compal Electronics is currently generating about 0.03 per unit of risk. If you would invest  1,595  in Kinpo Electronics on September 12, 2024 and sell it today you would earn a total of  1,140  from holding Kinpo Electronics or generate 71.47% return on investment over 90 days.

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

Kinpo Electronics  vs.  Compal Electronics

Kinpo Electronics

Risk-Adjusted Performance

10 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Kinpo Electronics are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Kinpo Electronics showed solid returns over the last few months and may actually be approaching a breakup point.

Compal Electronics

Risk-Adjusted Performance

13 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Compal Electronics are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Compal Electronics showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Kinpo Electronics and Compal Electronics

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

The idea behind Kinpo Electronics and Compal Electronics 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.