Correlation Between Compal Electronics and Kinpo Electronics
Can any of the company-specific risk be diversified away by investing in both Compal Electronics and Kinpo Electronics 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 Kinpo Electronics into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Compal Electronics and Kinpo Electronics, you can compare the effects of market volatilities on Compal Electronics and Kinpo Electronics 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 Kinpo Electronics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Compal Electronics and Kinpo Electronics.
Diversification Opportunities for Compal Electronics and Kinpo Electronics
0.85 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Compal and Kinpo is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Compal Electronics and Kinpo Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kinpo Electronics 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 Kinpo Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kinpo Electronics has no effect on the direction of Compal Electronics i.e., Compal Electronics and Kinpo Electronics go up and down completely randomly.
Pair Corralation between Compal Electronics and Kinpo Electronics
Assuming the 90 days trading horizon Compal Electronics is expected to generate 5.17 times less return on investment than Kinpo Electronics. But when comparing it to its historical volatility, Compal Electronics is 2.37 times less risky than Kinpo Electronics. It trades about 0.16 of its potential returns per unit of risk. Kinpo Electronics is currently generating about 0.34 of returns per unit of risk over similar time horizon. If you would invest 2,540 in Kinpo Electronics on August 28, 2024 and sell it today you would earn a total of 780.00 from holding Kinpo Electronics or generate 30.71% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Compal Electronics vs. Kinpo Electronics
Performance |
| Timeline |
| Compal Electronics |
| Kinpo Electronics |
Compal Electronics and Kinpo Electronics Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Compal Electronics and Kinpo Electronics
The main advantage of trading using opposite Compal Electronics and Kinpo Electronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Compal Electronics position performs unexpectedly, Kinpo Electronics 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 Kinpo Electronics will offset losses from the drop in Kinpo Electronics' long position.The idea behind Compal Electronics and Kinpo Electronics 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.| Kinpo Electronics vs. Taiwan Semiconductor Manufacturing | Kinpo Electronics vs. Hon Hai Precision | Kinpo Electronics vs. MediaTek | Kinpo Electronics vs. Chunghwa Telecom Co |
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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.
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