Correlation Between ASE Industrial and Bright Led

Can any of the company-specific risk be diversified away by investing in both ASE Industrial and Bright Led 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 ASE Industrial and Bright Led into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between ASE Industrial Holding and Bright Led Electronics, you can compare the effects of market volatilities on ASE Industrial and Bright Led 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 ASE Industrial with a short position of Bright Led. Check out your portfolio center. Please also check ongoing floating volatility patterns of ASE Industrial and Bright Led.

Diversification Opportunities for ASE Industrial and Bright Led

0.6

Correlation Coefficient

ASE Industrial  Bright Led

Poor diversification

The 3 months correlation between ASE and Bright is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding ASE Industrial Holding and Bright Led Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bright Led Electronics and ASE Industrial 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 ASE Industrial Holding are associated (or correlated) with Bright Led. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bright Led Electronics has no effect on the direction of ASE Industrial i.e., ASE Industrial and Bright Led go up and down completely randomly.

Pair Corralation between ASE Industrial and Bright Led

Assuming the 90 days trading horizon ASE Industrial is expected to generate 7.82 times less return on investment than Bright Led. But when comparing it to its historical volatility, ASE Industrial Holding is 1.53 times less risky than Bright Led. It trades about 0.01 of its potential returns per unit of risk. Bright Led Electronics is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  2,040  in Bright Led Electronics on September 3, 2024 and sell it today you would earn a total of  160.00  from holding Bright Led Electronics or generate 7.84% return on investment over 90 days.

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

ASE Industrial Holding  vs.  Bright Led Electronics

ASE Industrial Holding

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ASE Industrial Holding has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, ASE Industrial is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Bright Led Electronics

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Bright Led Electronics are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Bright Led may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with ASE Industrial and Bright Led

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

The idea behind ASE Industrial Holding and Bright Led Electronics 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.