Correlation Between Compal Broadband and Advanced Echem

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

By analyzing existing cross correlation between Compal Broadband Networks and Advanced Echem Materials, you can compare the effects of market volatilities on Compal Broadband and Advanced Echem 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 Broadband with a short position of Advanced Echem. Check out your portfolio center. Please also check ongoing floating volatility patterns of Compal Broadband and Advanced Echem.

Diversification Opportunities for Compal Broadband and Advanced Echem

0.15

Correlation Coefficient

Compal Broadband  Advanced Echem

Average diversification

The 3 months correlation between Compal and Advanced is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding Compal Broadband Networks and Advanced Echem Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Advanced Echem Materials and Compal Broadband 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 Broadband Networks are associated (or correlated) with Advanced Echem. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Advanced Echem Materials has no effect on the direction of Compal Broadband i.e., Compal Broadband and Advanced Echem go up and down completely randomly.

Pair Corralation between Compal Broadband and Advanced Echem

Assuming the 90 days trading horizon Compal Broadband is expected to generate 5.98 times less return on investment than Advanced Echem. In addition to that, Compal Broadband is 1.36 times more volatile than Advanced Echem Materials. It trades about 0.01 of its total potential returns per unit of risk. Advanced Echem Materials is currently generating about 0.09 per unit of volatility. If you would invest  61,100  in Advanced Echem Materials on September 15, 2024 and sell it today you would earn a total of  6,800  from holding Advanced Echem Materials or generate 11.13% return on investment over 90 days.

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

Compal Broadband Networks  vs.  Advanced Echem Materials

Compal Broadband Networks

Risk-Adjusted Performance

0 of 100

Very Weak

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

Advanced Echem Materials

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Advanced Echem Materials are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Advanced Echem may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Compal Broadband and Advanced Echem

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

The idea behind Compal Broadband Networks and Advanced Echem Materials 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.