Correlation Between Cheng Uei and Darfon Electronics

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

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

Diversification Opportunities for Cheng Uei and Darfon Electronics

-0.05

Correlation Coefficient

Cheng Uei  Darfon Electronics

Good diversification

The 3 months correlation between Cheng and Darfon is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding Cheng Uei Precision and Darfon Electronics Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Darfon Electronics Corp and Cheng Uei 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 Cheng Uei Precision are associated (or correlated) with Darfon Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Darfon Electronics Corp has no effect on the direction of Cheng Uei i.e., Cheng Uei and Darfon Electronics go up and down completely randomly.

Pair Corralation between Cheng Uei and Darfon Electronics

Assuming the 90 days trading horizon Cheng Uei Precision is expected to generate 1.63 times more return on investment than Darfon Electronics. However, Cheng Uei is 1.63 times more volatile than Darfon Electronics Corp. It trades about 0.09 of its potential returns per unit of risk. Darfon Electronics Corp is currently generating about -0.02 per unit of risk. If you would invest  6,830  in Cheng Uei Precision on September 3, 2024 and sell it today you would earn a total of  1,130  from holding Cheng Uei Precision or generate 16.54% return on investment over 90 days.

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

Cheng Uei Precision  vs.  Darfon Electronics Corp

Cheng Uei Precision

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Cheng Uei Precision are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Cheng Uei showed solid returns over the last few months and may actually be approaching a breakup point.

Darfon Electronics Corp

Risk-Adjusted Performance

0 of 100

Very Weak

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

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

The idea behind Cheng Uei Precision and Darfon Electronics 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.

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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.