Correlation Between Compal Electronics and Elitegroup Computer

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

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

Diversification Opportunities for Compal Electronics and Elitegroup Computer

-0.41

Correlation Coefficient

Compal Electronics  Elitegroup Computer

Very good diversification

The 3 months correlation between Compal and Elitegroup is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding Compal Electronics and Elitegroup Computer Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Elitegroup Computer 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 Elitegroup Computer. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Elitegroup Computer has no effect on the direction of Compal Electronics i.e., Compal Electronics and Elitegroup Computer go up and down completely randomly.

Pair Corralation between Compal Electronics and Elitegroup Computer

Assuming the 90 days trading horizon Compal Electronics is expected to generate 0.81 times more return on investment than Elitegroup Computer. However, Compal Electronics is 1.23 times less risky than Elitegroup Computer. It trades about 0.19 of its potential returns per unit of risk. Elitegroup Computer Systems is currently generating about 0.01 per unit of risk. If you would invest  3,195  in Compal Electronics on September 4, 2024 and sell it today you would earn a total of  585.00  from holding Compal Electronics or generate 18.31% return on investment over 90 days.

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

Compal Electronics  vs.  Elitegroup Computer Systems

Compal Electronics

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Compal Electronics are ranked lower than 15 (%) 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.

Elitegroup Computer

Risk-Adjusted Performance

0 of 100

Very Weak

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

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

The idea behind Compal Electronics and Elitegroup Computer Systems 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.