Correlation Between InfoBank and Wave Electronics

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

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

Diversification Opportunities for InfoBank and Wave Electronics

-0.02

Correlation Coefficient

InfoBank  Wave Electronics

Good diversification

The 3 months correlation between InfoBank and Wave is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding InfoBank and Wave Electronics Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wave Electronics and InfoBank 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 InfoBank are associated (or correlated) with Wave Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wave Electronics has no effect on the direction of InfoBank i.e., InfoBank and Wave Electronics go up and down completely randomly.

Pair Corralation between InfoBank and Wave Electronics

Assuming the 90 days trading horizon InfoBank is expected to generate 1.27 times more return on investment than Wave Electronics. However, InfoBank is 1.27 times more volatile than Wave Electronics Co. It trades about 0.0 of its potential returns per unit of risk. Wave Electronics Co is currently generating about -0.12 per unit of risk. If you would invest  639,000  in InfoBank on September 12, 2024 and sell it today you would lose (21,000) from holding InfoBank or give up 3.29% of portfolio value over 90 days.

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

InfoBank  vs.  Wave Electronics Co

InfoBank

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days InfoBank has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, InfoBank is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Wave Electronics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Wave Electronics Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with InfoBank and Wave Electronics

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

The idea behind InfoBank and Wave Electronics Co 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 Transaction History module to view history of all your transactions and understand their impact on performance.