Correlation Between Ford and Compal Electronics
Can any of the company-specific risk be diversified away by investing in both Ford 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 Ford and Compal Electronics into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and Compal Electronics, you can compare the effects of market volatilities on Ford 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 Ford with a short position of Compal Electronics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and Compal Electronics.
Diversification Opportunities for Ford and Compal Electronics
0.44 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Ford and Compal is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Compal Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Compal Electronics and Ford 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 Ford Motor 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 Ford i.e., Ford and Compal Electronics go up and down completely randomly.
Pair Corralation between Ford and Compal Electronics
Taking into account the 90-day investment horizon Ford is expected to generate 1.13 times less return on investment than Compal Electronics. In addition to that, Ford is 1.57 times more volatile than Compal Electronics. It trades about 0.01 of its total potential returns per unit of risk. Compal Electronics is currently generating about 0.02 per unit of volatility. If you would invest 3,715 in Compal Electronics on August 28, 2024 and sell it today you would earn a total of 110.00 from holding Compal Electronics or generate 2.96% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Ford Motor vs. Compal Electronics
Performance |
| Timeline |
| Ford Motor |
| Compal Electronics |
Ford and Compal Electronics Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and Compal Electronics
The main advantage of trading using opposite Ford and Compal Electronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford 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 Ford Motor 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.| Compal Electronics vs. Quanta Computer | Compal Electronics vs. Inventec Corp | Compal Electronics vs. Asustek Computer | Compal Electronics vs. Acer Inc |
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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