Correlation Between Asia Metal and MediaTek

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

By analyzing existing cross correlation between Asia Metal Industries and MediaTek, you can compare the effects of market volatilities on Asia Metal and MediaTek 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 Asia Metal with a short position of MediaTek. Check out your portfolio center. Please also check ongoing floating volatility patterns of Asia Metal and MediaTek.

Diversification Opportunities for Asia Metal and MediaTek

0.2

Correlation Coefficient

Asia Metal  MediaTek

Modest diversification

The 3 months correlation between Asia and MediaTek is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Asia Metal Industries and MediaTek in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MediaTek and Asia Metal 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 Asia Metal Industries are associated (or correlated) with MediaTek. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MediaTek has no effect on the direction of Asia Metal i.e., Asia Metal and MediaTek go up and down completely randomly.

Pair Corralation between Asia Metal and MediaTek

Assuming the 90 days trading horizon Asia Metal is expected to generate 8.17 times less return on investment than MediaTek. In addition to that, Asia Metal is 1.3 times more volatile than MediaTek. It trades about 0.01 of its total potential returns per unit of risk. MediaTek is currently generating about 0.15 per unit of volatility. If you would invest  112,500  in MediaTek on September 13, 2024 and sell it today you would earn a total of  22,500  from holding MediaTek or generate 20.0% return on investment over 90 days.

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

Asia Metal Industries  vs.  MediaTek

Asia Metal Industries

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Asia Metal Industries are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Asia Metal is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

MediaTek

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in MediaTek are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, MediaTek showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Asia Metal and MediaTek

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

The idea behind Asia Metal Industries and MediaTek 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.