Correlation Between Wave Electronics and Daeduck Electronics

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

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

Diversification Opportunities for Wave Electronics and Daeduck Electronics

0.7

Correlation Coefficient

Wave Electronics  Daeduck Electronics

Poor diversification

The 3 months correlation between Wave and Daeduck is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Wave Electronics Co and Daeduck Electronics Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Daeduck Electronics and Wave Electronics 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 Wave Electronics Co are associated (or correlated) with Daeduck Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Daeduck Electronics has no effect on the direction of Wave Electronics i.e., Wave Electronics and Daeduck Electronics go up and down completely randomly.

Pair Corralation between Wave Electronics and Daeduck Electronics

Assuming the 90 days trading horizon Wave Electronics is expected to generate 1.11 times less return on investment than Daeduck Electronics. In addition to that, Wave Electronics is 3.03 times more volatile than Daeduck Electronics Co. It trades about 0.04 of its total potential returns per unit of risk. Daeduck Electronics Co is currently generating about 0.12 per unit of volatility. If you would invest  667,000  in Daeduck Electronics Co on December 1, 2024 and sell it today you would earn a total of  38,000  from holding Daeduck Electronics Co or generate 5.7% return on investment over 90 days.

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

Wave Electronics Co  vs.  Daeduck Electronics Co

Wave Electronics

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Wave Electronics Co are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Wave Electronics is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Daeduck Electronics

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Daeduck Electronics Co are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Daeduck Electronics is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Wave Electronics and Daeduck Electronics

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

The idea behind Wave Electronics Co and Daeduck 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.

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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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.