Correlation Between Wistron Corp and Compal Electronics

Can any of the company-specific risk be diversified away by investing in both Wistron Corp 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 Wistron Corp and Compal Electronics into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Wistron Corp and Compal Electronics, you can compare the effects of market volatilities on Wistron Corp 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 Wistron Corp with a short position of Compal Electronics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Wistron Corp and Compal Electronics.

Diversification Opportunities for Wistron Corp and Compal Electronics

0.33

Correlation Coefficient

Wistron Corp  Compal Electronics

Weak diversification

The 3 months correlation between Wistron and Compal is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Wistron Corp and Compal Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Compal Electronics and Wistron Corp 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 Wistron Corp 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 Wistron Corp i.e., Wistron Corp and Compal Electronics go up and down completely randomly.

Pair Corralation between Wistron Corp and Compal Electronics

Assuming the 90 days trading horizon Wistron Corp is expected to generate 1.21 times less return on investment than Compal Electronics. In addition to that, Wistron Corp is 1.24 times more volatile than Compal Electronics. It trades about 0.06 of its total potential returns per unit of risk. Compal Electronics is currently generating about 0.08 per unit of volatility. If you would invest  3,080  in Compal Electronics on February 20, 2024 and sell it today you would earn a total of  595.00  from holding Compal Electronics or generate 19.32% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Wistron Corp  vs.  Compal Electronics

Wistron Corp

Risk-Adjusted Performance

0 of 100

OK

Over the last 90 days Wistron Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Compal Electronics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Compal Electronics has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Compal Electronics is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Wistron Corp and Compal Electronics

The main advantage of trading using opposite Wistron Corp and Compal Electronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Wistron Corp 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 Wistron Corp 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.