Correlation Between Compal Broadband and Dawushan Farm

Can any of the company-specific risk be diversified away by investing in both Compal Broadband and Dawushan Farm 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 Dawushan Farm 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 Dawushan Farm Tech, you can compare the effects of market volatilities on Compal Broadband and Dawushan Farm 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 Dawushan Farm. Check out your portfolio center. Please also check ongoing floating volatility patterns of Compal Broadband and Dawushan Farm.

Diversification Opportunities for Compal Broadband and Dawushan Farm

-0.36

Correlation Coefficient

Compal Broadband  Dawushan Farm

Very good diversification

The 3 months correlation between Compal and Dawushan is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding Compal Broadband Networks and Dawushan Farm Tech in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dawushan Farm Tech 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 Dawushan Farm. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dawushan Farm Tech has no effect on the direction of Compal Broadband i.e., Compal Broadband and Dawushan Farm go up and down completely randomly.

Pair Corralation between Compal Broadband and Dawushan Farm

Assuming the 90 days trading horizon Compal Broadband Networks is expected to generate 1.9 times more return on investment than Dawushan Farm. However, Compal Broadband is 1.9 times more volatile than Dawushan Farm Tech. It trades about 0.01 of its potential returns per unit of risk. Dawushan Farm Tech is currently generating about -0.02 per unit of risk. If you would invest  2,465  in Compal Broadband Networks on September 15, 2024 and sell it today you would lose (20.00) from holding Compal Broadband Networks or give up 0.81% of portfolio value over 90 days.

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

Compal Broadband Networks  vs.  Dawushan Farm Tech

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.

Dawushan Farm Tech

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Dawushan Farm Tech has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Dawushan Farm 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 Compal Broadband and Dawushan Farm

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

The idea behind Compal Broadband Networks and Dawushan Farm Tech 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.