Correlation Between Compal Electronics and CMC Magnetics

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

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

Diversification Opportunities for Compal Electronics and CMC Magnetics

-0.51

Correlation Coefficient

Compal Electronics  CMC Magnetics

Excellent diversification

The 3 months correlation between Compal and CMC is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding Compal Electronics and CMC Magnetics Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CMC Magnetics 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 are associated (or correlated) with CMC Magnetics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CMC Magnetics Corp has no effect on the direction of Compal Electronics i.e., Compal Electronics and CMC Magnetics go up and down completely randomly.

Pair Corralation between Compal Electronics and CMC Magnetics

Assuming the 90 days trading horizon Compal Electronics is expected to generate 1.09 times more return on investment than CMC Magnetics. However, Compal Electronics is 1.09 times more volatile than CMC Magnetics Corp. It trades about 0.16 of its potential returns per unit of risk. CMC Magnetics Corp is currently generating about -0.08 per unit of risk. If you would invest  3,385  in Compal Electronics on September 13, 2024 and sell it today you would earn a total of  465.00  from holding Compal Electronics or generate 13.74% return on investment over 90 days.

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

Compal Electronics  vs.  CMC Magnetics Corp

Compal Electronics

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Compal Electronics are ranked lower than 12 (%) 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.

CMC Magnetics Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CMC Magnetics Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, CMC Magnetics 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 CMC Magnetics

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

The idea behind Compal Electronics and CMC Magnetics 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.