Correlation Between Analog Devices and ASE Industrial

Can any of the company-specific risk be diversified away by investing in both Analog Devices and ASE Industrial 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 Analog Devices and ASE Industrial into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Analog Devices and ASE Industrial Holding, you can compare the effects of market volatilities on Analog Devices and ASE Industrial 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 Analog Devices with a short position of ASE Industrial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Analog Devices and ASE Industrial.

Diversification Opportunities for Analog Devices and ASE Industrial

0.45

Correlation Coefficient

Analog Devices  ASE Industrial

Very weak diversification

The 3 months correlation between Analog and ASE is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Analog Devices and ASE Industrial Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ASE Industrial Holding and Analog Devices 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 Analog Devices are associated (or correlated) with ASE Industrial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ASE Industrial Holding has no effect on the direction of Analog Devices i.e., Analog Devices and ASE Industrial go up and down completely randomly.

Pair Corralation between Analog Devices and ASE Industrial

Considering the 90-day investment horizon Analog Devices is expected to under-perform the ASE Industrial. But the stock apears to be less risky and, when comparing its historical volatility, Analog Devices is 1.46 times less risky than ASE Industrial. The stock trades about -0.03 of its potential returns per unit of risk. The ASE Industrial Holding is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  950.00  in ASE Industrial Holding on January 21, 2024 and sell it today you would earn a total of  55.00  from holding ASE Industrial Holding or generate 5.79% return on investment over 90 days.

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

Analog Devices  vs.  ASE Industrial Holding

Analog Devices

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Analog Devices has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong fundamental indicators, Analog Devices is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

ASE Industrial Holding

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in ASE Industrial Holding are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile basic indicators, ASE Industrial may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with Analog Devices and ASE Industrial

The main advantage of trading using opposite Analog Devices and ASE Industrial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Analog Devices position performs unexpectedly, ASE Industrial 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 ASE Industrial will offset losses from the drop in ASE Industrial's long position.

The idea behind Analog Devices and ASE Industrial Holding 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.