Correlation Between Wave Electronics and Tway Air

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

Diversification Opportunities for Wave Electronics and Tway Air

0.42

Correlation Coefficient

Wave Electronics  Tway Air

Very weak diversification

The 3 months correlation between Wave and Tway is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Wave Electronics Co and Tway Air Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tway Air 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 Tway Air. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tway Air has no effect on the direction of Wave Electronics i.e., Wave Electronics and Tway Air go up and down completely randomly.

Pair Corralation between Wave Electronics and Tway Air

Assuming the 90 days trading horizon Wave Electronics Co is expected to under-perform the Tway Air. But the stock apears to be less risky and, when comparing its historical volatility, Wave Electronics Co is 1.58 times less risky than Tway Air. The stock trades about -0.1 of its potential returns per unit of risk. The Tway Air Co is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  300,500  in Tway Air Co on September 14, 2024 and sell it today you would lose (37,500) from holding Tway Air Co or give up 12.48% of portfolio value over 90 days.

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

Wave Electronics Co  vs.  Tway Air Co

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.

Tway Air

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Tway Air Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Wave Electronics and Tway Air

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

The idea behind Wave Electronics Co and Tway Air 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.