Correlation Between Winbond Electronics and Elite Semiconductor

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

By analyzing existing cross correlation between Winbond Electronics Corp and Elite Semiconductor Memory, you can compare the effects of market volatilities on Winbond Electronics and Elite Semiconductor 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 Winbond Electronics with a short position of Elite Semiconductor. Check out your portfolio center. Please also check ongoing floating volatility patterns of Winbond Electronics and Elite Semiconductor.

Diversification Opportunities for Winbond Electronics and Elite Semiconductor

0.9

Correlation Coefficient

Winbond Electronics  Elite Semiconductor

Almost no diversification

The 3 months correlation between Winbond and Elite is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Winbond Electronics Corp and Elite Semiconductor Memory in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Elite Semiconductor and Winbond 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 Winbond Electronics Corp are associated (or correlated) with Elite Semiconductor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Elite Semiconductor has no effect on the direction of Winbond Electronics i.e., Winbond Electronics and Elite Semiconductor go up and down completely randomly.

Pair Corralation between Winbond Electronics and Elite Semiconductor

Assuming the 90 days trading horizon Winbond Electronics Corp is expected to under-perform the Elite Semiconductor. But the stock apears to be less risky and, when comparing its historical volatility, Winbond Electronics Corp is 1.11 times less risky than Elite Semiconductor. The stock trades about -0.35 of its potential returns per unit of risk. The Elite Semiconductor Memory is currently generating about -0.17 of returns per unit of risk over similar time horizon. If you would invest  7,700  in Elite Semiconductor Memory on September 2, 2024 and sell it today you would lose (1,480) from holding Elite Semiconductor Memory or give up 19.22% of portfolio value over 90 days.

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

Winbond Electronics Corp  vs.  Elite Semiconductor Memory

Winbond Electronics Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Winbond Electronics Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in January 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Elite Semiconductor

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Elite Semiconductor Memory has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in January 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Pair Trading with Winbond Electronics and Elite Semiconductor

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

The idea behind Winbond Electronics Corp and Elite Semiconductor Memory 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.