Correlation Between Compal Electronics and Lite On
Can any of the company-specific risk be diversified away by investing in both Compal Electronics and Lite On 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 Electronics and Lite On into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Compal Electronics and Lite On Technology Corp, you can compare the effects of market volatilities on Compal Electronics and Lite On 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 Electronics with a short position of Lite On. Check out your portfolio center. Please also check ongoing floating volatility patterns of Compal Electronics and Lite On.
Diversification Opportunities for Compal Electronics and Lite On
0.06 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Compal and Lite is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Compal Electronics and Lite On Technology Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lite On Technology and Compal Electronics 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 Electronics are associated (or correlated) with Lite On. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lite On Technology has no effect on the direction of Compal Electronics i.e., Compal Electronics and Lite On go up and down completely randomly.
Pair Corralation between Compal Electronics and Lite On
Assuming the 90 days trading horizon Compal Electronics is expected to generate 2.56 times less return on investment than Lite On. But when comparing it to its historical volatility, Compal Electronics is 1.65 times less risky than Lite On. It trades about 0.17 of its potential returns per unit of risk. Lite On Technology Corp is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest 10,050 in Lite On Technology Corp on November 3, 2024 and sell it today you would earn a total of 850.00 from holding Lite On Technology Corp or generate 8.46% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Compal Electronics vs. Lite On Technology Corp
Performance |
| Timeline |
| Compal Electronics |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Weak
| Lite On Technology |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Modest
Compal Electronics and Lite On Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Compal Electronics and Lite On
The main advantage of trading using opposite Compal Electronics and Lite On positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Compal Electronics position performs unexpectedly, Lite On 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 Lite On will offset losses from the drop in Lite On's long position.The idea behind Compal Electronics and Lite On Technology Corp 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.
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