Correlation Between Compal Electronics and Excellence Optoelectronic

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

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

Diversification Opportunities for Compal Electronics and Excellence Optoelectronic

0.78

Correlation Coefficient

Compal Electronics  Excellence Optoelectronic

Poor diversification

The 3 months correlation between Compal and Excellence is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Compal Electronics and Excellence Optoelectronic in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Excellence Optoelectronic 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 Excellence Optoelectronic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Excellence Optoelectronic has no effect on the direction of Compal Electronics i.e., Compal Electronics and Excellence Optoelectronic go up and down completely randomly.

Pair Corralation between Compal Electronics and Excellence Optoelectronic

Assuming the 90 days trading horizon Compal Electronics is expected to generate 1.31 times less return on investment than Excellence Optoelectronic. But when comparing it to its historical volatility, Compal Electronics is 2.48 times less risky than Excellence Optoelectronic. It trades about 0.13 of its potential returns per unit of risk. Excellence Optoelectronic is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  2,615  in Excellence Optoelectronic on September 3, 2024 and sell it today you would earn a total of  325.00  from holding Excellence Optoelectronic or generate 12.43% return on investment over 90 days.

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

Compal Electronics  vs.  Excellence Optoelectronic

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.

Excellence Optoelectronic

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Excellence Optoelectronic are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Excellence Optoelectronic showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Compal Electronics and Excellence Optoelectronic

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

The idea behind Compal Electronics and Excellence Optoelectronic 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.