Correlation Between LARGAN Precision and Compal Electronics

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Can any of the company-specific risk be diversified away by investing in both LARGAN Precision and Compal 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 LARGAN Precision and Compal Electronics into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between LARGAN Precision Co and Compal Electronics, you can compare the effects of market volatilities on LARGAN Precision and Compal 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 LARGAN Precision with a short position of Compal Electronics. Check out your portfolio center. Please also check ongoing floating volatility patterns of LARGAN Precision and Compal Electronics.

Diversification Opportunities for LARGAN Precision and Compal Electronics

-0.75
  Correlation Coefficient

Pay attention - limited upside

The 3 months correlation between LARGAN and Compal is -0.75. Overlapping area represents the amount of risk that can be diversified away by holding LARGAN Precision Co and Compal Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Compal Electronics and LARGAN Precision 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 LARGAN Precision Co are associated (or correlated) with Compal Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Compal Electronics has no effect on the direction of LARGAN Precision i.e., LARGAN Precision and Compal Electronics go up and down completely randomly.

Pair Corralation between LARGAN Precision and Compal Electronics

Assuming the 90 days trading horizon LARGAN Precision Co is expected to generate 1.64 times more return on investment than Compal Electronics. However, LARGAN Precision is 1.64 times more volatile than Compal Electronics. It trades about 0.03 of its potential returns per unit of risk. Compal Electronics is currently generating about 0.0 per unit of risk. If you would invest  229,500  in LARGAN Precision Co on September 1, 2024 and sell it today you would earn a total of  14,000  from holding LARGAN Precision Co or generate 6.1% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

LARGAN Precision Co  vs.  Compal Electronics

 Performance 
       Timeline  
LARGAN Precision 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days LARGAN Precision Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in December 2024. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.
Compal Electronics 

Risk-Adjusted Performance

9 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Compal Electronics are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Compal Electronics may actually be approaching a critical reversion point that can send shares even higher in December 2024.

LARGAN Precision and Compal Electronics Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with LARGAN Precision and Compal Electronics

The main advantage of trading using opposite LARGAN Precision and Compal Electronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if LARGAN Precision position performs unexpectedly, Compal 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 Compal Electronics will offset losses from the drop in Compal Electronics' long position.
The idea behind LARGAN Precision Co and Compal 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.
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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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.

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