Correlation Between Compal Broadband and Powerchip Semiconductor
Can any of the company-specific risk be diversified away by investing in both Compal Broadband and Powerchip Semiconductor 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 Broadband and Powerchip Semiconductor into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Compal Broadband Networks and Powerchip Semiconductor Manufacturing, you can compare the effects of market volatilities on Compal Broadband and Powerchip Semiconductor 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 Broadband with a short position of Powerchip Semiconductor. Check out your portfolio center. Please also check ongoing floating volatility patterns of Compal Broadband and Powerchip Semiconductor.
Diversification Opportunities for Compal Broadband and Powerchip Semiconductor
0.46 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Compal and Powerchip is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Compal Broadband Networks and Powerchip Semiconductor Manufa in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Powerchip Semiconductor and Compal Broadband 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 Broadband Networks are associated (or correlated) with Powerchip Semiconductor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Powerchip Semiconductor has no effect on the direction of Compal Broadband i.e., Compal Broadband and Powerchip Semiconductor go up and down completely randomly.
Pair Corralation between Compal Broadband and Powerchip Semiconductor
Assuming the 90 days trading horizon Compal Broadband is expected to generate 23.44 times less return on investment than Powerchip Semiconductor. But when comparing it to its historical volatility, Compal Broadband Networks is 2.62 times less risky than Powerchip Semiconductor. It trades about 0.04 of its potential returns per unit of risk. Powerchip Semiconductor Manufacturing is currently generating about 0.33 of returns per unit of risk over similar time horizon. If you would invest 1,570 in Powerchip Semiconductor Manufacturing on November 2, 2024 and sell it today you would earn a total of 425.00 from holding Powerchip Semiconductor Manufacturing or generate 27.07% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Compal Broadband Networks vs. Powerchip Semiconductor Manufa
Performance |
| Timeline |
| Compal Broadband Networks |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
| Powerchip Semiconductor |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Insignificant
Compal Broadband and Powerchip Semiconductor Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Compal Broadband and Powerchip Semiconductor
The main advantage of trading using opposite Compal Broadband and Powerchip Semiconductor positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Compal Broadband position performs unexpectedly, Powerchip Semiconductor 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 Powerchip Semiconductor will offset losses from the drop in Powerchip Semiconductor's long position.The idea behind Compal Broadband Networks and Powerchip Semiconductor Manufacturing 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.
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