Correlation Between Wave Electronics and RPBio

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

Diversification Opportunities for Wave Electronics and RPBio

0.3

Correlation Coefficient

Wave Electronics  RPBio

Weak diversification

The 3 months correlation between Wave and RPBio is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Wave Electronics Co and RPBio Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RPBio Inc 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 RPBio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RPBio Inc has no effect on the direction of Wave Electronics i.e., Wave Electronics and RPBio go up and down completely randomly.

Pair Corralation between Wave Electronics and RPBio

Assuming the 90 days trading horizon Wave Electronics is expected to generate 2.02 times less return on investment than RPBio. In addition to that, Wave Electronics is 1.18 times more volatile than RPBio Inc. It trades about 0.04 of its total potential returns per unit of risk. RPBio Inc is currently generating about 0.09 per unit of volatility. If you would invest  505,000  in RPBio Inc on December 30, 2024 and sell it today you would earn a total of  67,000  from holding RPBio Inc or generate 13.27% return on investment over 90 days.

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

Wave Electronics Co  vs.  RPBio Inc

Wave Electronics

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Wave Electronics Co are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Wave Electronics may actually be approaching a critical reversion point that can send shares even higher in April 2025.

RPBio Inc

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in RPBio Inc are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, RPBio sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Wave Electronics and RPBio

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

The idea behind Wave Electronics Co and RPBio Inc 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.