Correlation Between TongFu Microelectronics and Leyard Optoelectronic

Can any of the company-specific risk be diversified away by investing in both TongFu Microelectronics and Leyard Optoelectronic 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 TongFu Microelectronics and Leyard Optoelectronic into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between TongFu Microelectronics Co and Leyard Optoelectronic, you can compare the effects of market volatilities on TongFu Microelectronics and Leyard Optoelectronic 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 TongFu Microelectronics with a short position of Leyard Optoelectronic. Check out your portfolio center. Please also check ongoing floating volatility patterns of TongFu Microelectronics and Leyard Optoelectronic.

Diversification Opportunities for TongFu Microelectronics and Leyard Optoelectronic

0.38

Correlation Coefficient

TongFu Microelectronics  Leyard Optoelectronic

Weak diversification

The 3 months correlation between TongFu and Leyard is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding TongFu Microelectronics Co and Leyard Optoelectronic in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Leyard Optoelectronic and TongFu Microelectronics 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 TongFu Microelectronics Co are associated (or correlated) with Leyard Optoelectronic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Leyard Optoelectronic has no effect on the direction of TongFu Microelectronics i.e., TongFu Microelectronics and Leyard Optoelectronic go up and down completely randomly.

Pair Corralation between TongFu Microelectronics and Leyard Optoelectronic

Assuming the 90 days trading horizon TongFu Microelectronics Co is expected to under-perform the Leyard Optoelectronic. But the stock apears to be less risky and, when comparing its historical volatility, TongFu Microelectronics Co is 2.42 times less risky than Leyard Optoelectronic. The stock trades about -0.22 of its potential returns per unit of risk. The Leyard Optoelectronic is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  589.00  in Leyard Optoelectronic on October 7, 2024 and sell it today you would earn a total of  7.00  from holding Leyard Optoelectronic or generate 1.19% return on investment over 90 days.

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

TongFu Microelectronics Co  vs.  Leyard Optoelectronic

TongFu Microelectronics

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in TongFu Microelectronics Co are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, TongFu Microelectronics may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Leyard Optoelectronic

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Leyard Optoelectronic are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Leyard Optoelectronic may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with TongFu Microelectronics and Leyard Optoelectronic

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

The idea behind TongFu Microelectronics Co and Leyard Optoelectronic 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.