Correlation Between GigaMedia and BYD ELECTRONIC

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

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

Diversification Opportunities for GigaMedia and BYD ELECTRONIC

0.48

Correlation Coefficient

GigaMedia  BYD ELECTRONIC

Very weak diversification

The 3 months correlation between GigaMedia and BYD is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding GigaMedia and BYD ELECTRONIC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BYD ELECTRONIC and GigaMedia 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 GigaMedia are associated (or correlated) with BYD ELECTRONIC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BYD ELECTRONIC has no effect on the direction of GigaMedia i.e., GigaMedia and BYD ELECTRONIC go up and down completely randomly.

Pair Corralation between GigaMedia and BYD ELECTRONIC

Assuming the 90 days trading horizon GigaMedia is expected to generate 4.23 times less return on investment than BYD ELECTRONIC. But when comparing it to its historical volatility, GigaMedia is 3.03 times less risky than BYD ELECTRONIC. It trades about 0.13 of its potential returns per unit of risk. BYD ELECTRONIC is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  289.00  in BYD ELECTRONIC on September 12, 2024 and sell it today you would earn a total of  216.00  from holding BYD ELECTRONIC or generate 74.74% return on investment over 90 days.

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

GigaMedia  vs.  BYD ELECTRONIC

GigaMedia

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in GigaMedia are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, GigaMedia unveiled solid returns over the last few months and may actually be approaching a breakup point.

BYD ELECTRONIC

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in BYD ELECTRONIC are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, BYD ELECTRONIC unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GigaMedia and BYD ELECTRONIC

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

The idea behind GigaMedia and BYD ELECTRONIC 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.