Correlation Between Wave Electronics and COWAY

Can any of the company-specific risk be diversified away by investing in both Wave Electronics and COWAY 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 COWAY 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 COWAY Co, you can compare the effects of market volatilities on Wave Electronics and COWAY 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 COWAY. Check out your portfolio center. Please also check ongoing floating volatility patterns of Wave Electronics and COWAY.

Diversification Opportunities for Wave Electronics and COWAY

0.61

Correlation Coefficient

Wave Electronics  COWAY

Poor diversification

The 3 months correlation between Wave and COWAY is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Wave Electronics Co and COWAY Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on COWAY 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 COWAY. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of COWAY has no effect on the direction of Wave Electronics i.e., Wave Electronics and COWAY go up and down completely randomly.

Pair Corralation between Wave Electronics and COWAY

Assuming the 90 days trading horizon Wave Electronics is expected to generate 2.01 times less return on investment than COWAY. In addition to that, Wave Electronics is 1.16 times more volatile than COWAY Co. It trades about 0.09 of its total potential returns per unit of risk. COWAY Co is currently generating about 0.2 per unit of volatility. If you would invest  6,517,000  in COWAY Co on December 22, 2024 and sell it today you would earn a total of  2,203,000  from holding COWAY Co or generate 33.8% 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.  COWAY Co

Wave Electronics

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Wave Electronics Co are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Wave Electronics sustained solid returns over the last few months and may actually be approaching a breakup point.

COWAY

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in COWAY Co are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, COWAY sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Wave Electronics and COWAY

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

The idea behind Wave Electronics Co and COWAY 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.