Correlation Between Compal Electronics and AzureWave Technologies

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

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

Diversification Opportunities for Compal Electronics and AzureWave Technologies

0.16

Correlation Coefficient

Compal Electronics  AzureWave Technologies

Average diversification

The 3 months correlation between Compal and AzureWave is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding Compal Electronics and AzureWave Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AzureWave Technologies 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 AzureWave Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AzureWave Technologies has no effect on the direction of Compal Electronics i.e., Compal Electronics and AzureWave Technologies go up and down completely randomly.

Pair Corralation between Compal Electronics and AzureWave Technologies

Assuming the 90 days trading horizon Compal Electronics is expected to generate 0.63 times more return on investment than AzureWave Technologies. However, Compal Electronics is 1.6 times less risky than AzureWave Technologies. It trades about 0.13 of its potential returns per unit of risk. AzureWave Technologies is currently generating about 0.03 per unit of risk. If you would invest  3,290  in Compal Electronics on September 3, 2024 and sell it today you would earn a total of  395.00  from holding Compal Electronics or generate 12.01% return on investment over 90 days.

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

Compal Electronics  vs.  AzureWave Technologies

Compal Electronics

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Compal Electronics are ranked lower than 10 (%) 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 January 2025.

AzureWave Technologies

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in AzureWave Technologies are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, AzureWave Technologies 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 AzureWave Technologies

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

The idea behind Compal Electronics and AzureWave Technologies 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.

Check out your portfolio center.

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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.