Correlation Between Microsoft and Compal Electronics
Can any of the company-specific risk be diversified away by investing in both Microsoft 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 Microsoft and Compal Electronics into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Compal Electronics, you can compare the effects of market volatilities on Microsoft 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 Microsoft with a short position of Compal Electronics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Compal Electronics.
Diversification Opportunities for Microsoft and Compal Electronics
0.04 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Microsoft and Compal is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Compal Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Compal Electronics and Microsoft 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 Microsoft 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 Microsoft i.e., Microsoft and Compal Electronics go up and down completely randomly.
Pair Corralation between Microsoft and Compal Electronics
Given the investment horizon of 90 days Microsoft is expected to generate 0.78 times more return on investment than Compal Electronics. However, Microsoft is 1.29 times less risky than Compal Electronics. It trades about 0.02 of its potential returns per unit of risk. Compal Electronics is currently generating about 0.0 per unit of risk. If you would invest 41,195 in Microsoft on August 31, 2024 and sell it today you would earn a total of 1,151 from holding Microsoft or generate 2.79% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microsoft vs. Compal Electronics
Performance |
| Timeline |
| Microsoft |
| Compal Electronics |
Microsoft and Compal Electronics Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Compal Electronics
The main advantage of trading using opposite Microsoft and Compal Electronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft 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.| Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Block Inc | Microsoft vs. Adobe Systems Incorporated |
| 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.
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