Correlation Between Compal Electronics and Lite On

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

By analyzing existing cross correlation between Compal Electronics and Lite On Technology Corp, you can compare the effects of market volatilities on Compal Electronics and Lite On 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 Lite On. Check out your portfolio center. Please also check ongoing floating volatility patterns of Compal Electronics and Lite On.

Diversification Opportunities for Compal Electronics and Lite On

0.49

Correlation Coefficient

Compal Electronics  Lite On

Very weak diversification

The 3 months correlation between Compal and Lite is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Compal Electronics and Lite On Technology Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lite On Technology 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 are associated (or correlated) with Lite On. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lite On Technology has no effect on the direction of Compal Electronics i.e., Compal Electronics and Lite On go up and down completely randomly.

Pair Corralation between Compal Electronics and Lite On

Assuming the 90 days trading horizon Compal Electronics is expected to generate 0.85 times more return on investment than Lite On. However, Compal Electronics is 1.17 times less risky than Lite On. It trades about 0.12 of its potential returns per unit of risk. Lite On Technology Corp is currently generating about -0.02 per unit of risk. If you would invest  3,325  in Compal Electronics on August 31, 2024 and sell it today you would earn a total of  360.00  from holding Compal Electronics or generate 10.83% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.41%
Values	Daily Returns

Compal Electronics  vs.  Lite On Technology Corp

Compal Electronics

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Compal Electronics are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Compal Electronics may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Lite On Technology

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lite On Technology Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Lite On is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Compal Electronics and Lite On

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

The idea behind Compal Electronics and Lite On Technology 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.