Correlation Between AU Optronics and Yuan High

Can any of the company-specific risk be diversified away by investing in both AU Optronics and Yuan High 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 AU Optronics and Yuan High into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between AU Optronics and Yuan High Tech Development, you can compare the effects of market volatilities on AU Optronics and Yuan High 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 AU Optronics with a short position of Yuan High. Check out your portfolio center. Please also check ongoing floating volatility patterns of AU Optronics and Yuan High.

Diversification Opportunities for AU Optronics and Yuan High

0.86

Correlation Coefficient

AU Optronics  Yuan High

Very poor diversification

The 3 months correlation between 2409 and Yuan is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding AU Optronics and Yuan High Tech Development in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Yuan High Tech and AU Optronics 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 AU Optronics are associated (or correlated) with Yuan High. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Yuan High Tech has no effect on the direction of AU Optronics i.e., AU Optronics and Yuan High go up and down completely randomly.

Pair Corralation between AU Optronics and Yuan High

Assuming the 90 days trading horizon AU Optronics is expected to under-perform the Yuan High. But the stock apears to be less risky and, when comparing its historical volatility, AU Optronics is 1.63 times less risky than Yuan High. The stock trades about -0.08 of its potential returns per unit of risk. The Yuan High Tech Development is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  16,150  in Yuan High Tech Development on September 15, 2024 and sell it today you would lose (1,150) from holding Yuan High Tech Development or give up 7.12% of portfolio value over 90 days.

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

AU Optronics  vs.  Yuan High Tech Development

AU Optronics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days AU Optronics has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Yuan High Tech

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Yuan High Tech Development has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Yuan High 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 AU Optronics and Yuan High

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

The idea behind AU Optronics and Yuan High Tech Development 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.